It was a “historic, sad and challenging day”. With these words, the Chairman of the Board of Directors of Credit Suisse, Axel Lehmann, described the end of the dramatic struggle for the future of the badly hit Swiss bank.
After a marathon of negotiations lasting several days, the solution was found, which Swiss President Alain Berset celebrated with relief as “solid” on Sunday evening: UBS is taking over Credit Suisse for three billion francs (a good three billion euros). The bailout was greeted with relief by central banks around the world.
“This is an emergency rescue,” said UBS Group Chairman Colm Kelleher. Swiss Finance Minister Karin Keller-Sutter was convinced that the crisis of confidence that was fatal to Credit Suisse would have spread internationally if the bank had crashed. “That would almost certainly have triggered a financial crisis,” said the minister.
Comprehensive liquidity if required
The takeover of Credit Suisse by UBS is the most significant banking merger in Europe since the financial crisis 15 years ago. With the deal, UBS will become a mammoth institution that will be larger than Deutsche Bank. The Swiss National Bank (SNB) is supporting the takeover with liquidity assistance of CHF 100 billion (around EUR 101 billion) to both banks. In order to reduce risks for UBS, the federal government is also issuing a guarantee of CHF 9 billion to cover potential losses. The measures will ensure that the SNB can provide Credit Suisse with comprehensive liquidity if necessary.
The President of the European Central Bank, Christine Lagarde, stressed that the measures are “crucial for restoring orderly market conditions and ensuring financial stability”. The banking sector in the euro area is resilient and has strong capital and liquidity positions. Federal Reserve Chairman Jerome Powell and US Treasury Secretary Janet Yellen spoke of a step to support financial stability. The Bank of England also welcomed the “comprehensive package of measures presented by the Swiss authorities to support financial stability”. The UK banking system is well capitalized and funded and remains safe and sound.
Failure would hit financial system hard
The Swiss government in Bern was under considerable pressure to stabilize the situation and support Credit Suisse. Because Credit Suisse is one of the world’s largest asset managers and is one of the 30 globally systemically important banks whose failure would shake the international financial system.
Federal President Berset said that “the Federal Council is convinced that the takeover is the best solution for restoring confidence”. Credit Suisse has lost customer confidence and liquidity had to be guaranteed. That is why the SNB made a loan available. The transaction is important for the stability of the Swiss financial center. A rapid stabilizing solution was essential. SNB President Thomas Jordan emphasized that reputation is central to the Swiss economy. According to the Financial Market Authority (Finma), the takeover will not fail due to competition law provisions.
Finance Minister Keller-Suter said the federal government had given a guarantee of CHF 9 billion to absorb Credit Suisse risks. “The taxpayers have little risk” – any other scenario would have incurred more costs. You have a private partner and a solid bank that is taking over Credit Suisse. The minister emphasized that it was not a state rescue. The federal government only gave a guarantee.
Course to record low
Credit Suisse had recently suffered from a significant loss of investor confidence. The share price had fallen to a record low after the bank’s largest investor ruled out providing further capital and the institution continued to struggle with cash outflows.
According to UBS, the merger will create a company with more than $5 trillion in assets under management. UBS CEO Kelleher said the takeover was attractive to UBS shareholders. “But as far as Credit Suisse is concerned, it’s an emergency solution.” UBS will pay the purchase price in its own shares, which corresponds to a price of CHF 0.76 per Credit Suisse share certificate.
The balance sheet total of UBS with more than 72,000 employees amounted to the equivalent of 1,030 billion euros in 2022, that of Credit Suisse with a good 50,000 employees to the equivalent of 535.44 billion euros. UBS had made a profit of $7.6 billion in 2022 (currently $7.07 billion). Credit Suisse, on the other hand, reported a loss of CHF 7.3 billion (EUR 7.4 billion).
