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Swiss bank UBS will buy smaller rival Credit Suisse for $3.25 billion in a deal orchestrated by regulators to avoid further turbulence in global financial markets.
Swiss authorities pushed for UBS to acquire its smaller rival after an attempt by Credit Suisse to borrow 50 billion francs ($54 billion) to reassure the bank’s investors and clients failed.
Shares of Credit Suisse and other banks tumbled this week after the collapse of two US banks sparked fears about other potentially troubled institutions in the global financial system.
Credit Suisse is one of 30 financial institutions known as banks of global systemic importance, and authorities were concerned about the consequences in the event of a collapse.
The deal was a “huge breather for the stability of international finance,” Swiss President Alain Berset said as he unveiled the announcement late Sunday.
“An out-of-control collapse of Credit Suisse would have led to incalculable consequences for the country and the international financial system,” he added.
Switzerland’s executive branch, a seven-member governing body that includes Berset, approved an emergency order allowing the merger to proceed without shareholder approval.
Credit Suisse Chairman Axel Lehmann called the deal “a real turning point.”
“This is a historic, sad and extremely difficult day for Credit Suisse, for Switzerland and for the global financial markets,” Lehmann said, adding that the focus now will be on the future and in particular Credit Suisse’s 50,000 employees, 17,000 of whom which are in Switzerland.
After news of the deal broke in Switzerland, global central banks announced coordinated financial measures to stabilize banks next week.
That includes daily access to a lending facility for banks looking to get US dollars if they need it, a common practice during the 2008 financial crisis. Three months after Lehman Brothers collapsed in September 2008, $580 billion was tapped. of dollars of these lines. New fund lines were also added during the market turmoil in the early stages of the COVID-19 pandemic in March 2020.
“Today is one of the most important days in European banking since 2008, with far-reaching repercussions for the industry,” said Max Georgiou, an analyst at Third Bridge. “These events could alter not only the trajectory of European banking but also the wealth management industry in general.”
Colm Kelleher, the chairman of UBS, hailed the “great opportunities” that will arise from the combination and highlighted his bank’s “risk-conservative culture” – a subtle criticism of Credit Suisse, which is better known for riskier investments for profit. bigger. He claimed the combination will create an entity with invested assets of $5 trillion.
The combination of Switzerland’s two largest banks – whose histories date back to the mid-19th century – is a blow to Switzerland’s reputation as a global financial center and leaves it on the verge of having just one major bank.
The president of the European Central Bank Christine Lagarde applauded the “prompt action” of the Swiss authorities, noting that they were “fundamental in restoring market conditions and guaranteeing financial stability.”
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