Switzerland-based global investment bank and financial services provider UBS is buying crisis-hit direct competitor Credit Suisse. The deal has been finalised for USD 3.2 billion. This would be an all-share acquisition with a price that is considerably lower than what Credit Suisse bid at Friday’s closing (17 March), which was USD 8 billion. Curious to know more? Here is everything you need to know about these Swiss banks and the acquisition.
What is Credit Suisse?
It is a Zürich-based investment bank with its registered shares (CSGN) listed in Switzerland, as well as American Depositary Shares (CS) in New York. The bank’s strategy is based on its market-leading Swiss bank franchises and wealth management businesses, as well as its potent asset management and market capabilities.
The bank reported a balance sheet worth half a trillion dollars and nearly 50,000 workers, including over 16,000 in Switzerland, towards the end of 2022.
Why is UBS buying Credit Suisse?
The surprising deal between the two financial mainstays after the historic collapse of the 167-year-old Credit Suisse that was once a symbol of Swiss national identity is structured to prevent a huge financial breakdown. This could have affected the financial position of the country in the global market.
The current scandals and trading losses at Credit Suisse frightened investors and clients, who withdrew around USD 10 billion in one day in the previous week, resulting in an acquisition with respect to the gloomy state of the financial industry worldwide.
One of the issues which came to light in this regard include the stepping down of former CEO of Credit Suisse, Tidjane Thiam, from his position, due to a surveillance operation. It so happened that when former wealth manager Iqbal Khan was heading for UBS, he was supposedly followed by private investigators at the behest of former COO Pierre-Olivier Bouée. This was reportedly done to determine the possibility of poaching clients and coworkers.
Other major problems hit the bank thereafter. According to CNBC, in June 2022 the bank was held guilty by Switzerland’s Federal Criminal Court of failing to prevent money laundering by an alleged drug trafficking gang between 2004 and 2008. With all of its problems mounting, Credit Suisse reported a loss of USD 7.9 billion in 2022 — its worst since 2008’s global financial crisis.
In the third week of March 2023, the bank acknowledged “material weakness” in its bookkeeping, leading to a complete collapse of investor confidence. When two US-based banks — Silicon Valley Bank and Signature Bank — collapsed recently, it added on to Credit Suisse’s woes.
As per various reports, it is conceivably the biggest restructuring of the global banking industry ever since the economic meltdown of 2008. Considering this, the Swiss government said that it will contribute over USD 9 billion to cover possible losses resulting from UBS’s takeover of the bank. Moreover, the Swiss National Bank has given UBS access to over USD 100 billion in liquidity to aid in the transaction.
What do the two banks say?
According to the official release of Credit Suisse, its chairman of the Board of Directors, Axel P. Lehmann, said, “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome. This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome.”
As per a Wall Street Journal report, “UBS chairman Colm Kelleher said that UBS would shrink Credit Suisse’s investment banking business and align it with UBS’s “conservative risk culture.” He said the deal “supports financial stability in Switzerland and creates significant sustainable value for UBS shareholders.” To help absorb the deal, however, UBS said it would pause its stock buyback program.”
The report also mentions that Finma, Switzerland’s financial regulator, said that Credit Suisse went through a “crisis of confidence.” Finma further added, “a risk of the bank becoming illiquid, even if it remained solvent, and it was necessary for the authorities to take action in order to prevent serious damage to the Swiss and international financial markets.”
Concluding the statement it said that the banks would open normally on 20 March “with no restrictions or interruptions.”
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What will happen to Credit Suisse shares after merger?
As per the release by Credit Suisse, its shareholders will receive 1 share in UBS for 22.48 shares in Credit Suisse as merger consideration. It also mentions, “This exchange ratio reflects a merger consideration of CHF 3 billion for all shares in Credit Suisse.”
According to a report by Reuters, “Under the deal with UBS, some Credit Suisse bondholders are major losers. The Swiss regulator decided that Credit Suisse bonds with a notional value of $17 billion will be valued at zero, angering some of the holders of the debt who thought they would be better protected than shareholders in a rescue deal announced on Sunday.”
(Main and Featured image: Courtesy of Credit Suisse)
This story first appeared in Lifestyle Asia India