The Swiss government guarantees 100 billion Swiss francs in liquidity and will assume up to 9 billion of possible losses
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The president of the Swiss Confederation, Alain Berset, has reported this Sunday the purchase of the Swiss bank Credit Suisse by the UBS bank under the merger format for 3,000 million Swiss francs (about 3,037 million euros), according to data from the own bank acquired.
The Swiss government guarantees 100 billion Swiss francs for the bank’s liquidity and will assume up to 9 billion of possible losses.
The Swiss Government, the Swiss National Bank and the Swiss Financial Market Supervisory Authority (FINMA) have decided, given the situation of instability and the lack of confidence in the entity, to “support the purchase of Credit Suisse by UBS”, has pointed out Berset at a press conference from the Federal Palace in Bern. “If this decision had not been taken, it could have had unforeseeable consequences,” she argued.
Specifically, Credit Suisse shareholders will receive one UBS share for every 22.48 shares in the original entity while the Swiss central bank, the SNB, will provide guarantees to guarantee the liquidity of banking entities. “Due to the emergency situation ruled by the Swiss federal government, this merger can be carried out without shareholder approval,” Credit Suisse said in a statement.
The published figures imply the purchase by UBS at 0.76 Swiss francs per share, far from the 1.86 Swiss francs that Credit Suisse was trading at at Friday’s close. In the last week the entity had lost a quarter of its value on the stock market.
SYSTEMIC BANK
“The situation is known, Credit Suisse is one of the 30 systemic banks worldwide. It is one of the two largest banks in the country. It is therefore not only decisive for Switzerland, for our companies, for private customers, for its own employees, but also for the stability of the entire financial system,” added Berset.
The Swiss leader has referred to the “significant turbulence” suffered in recent days by various financial markets. “This turbulence destabilized the most fragile banks and this was the case with Credit Suisse. Despite good capitalization, Credit Suisse has lost the confidence of the banks,” he explained.
Consequently, “in the face of such a loss of confidence, ensuring the supply of liquidity to a bank is one of the measures to be taken as the highest priority.” For this reason, the Government approved on Thursday night 50,000 million in immediate liquidity for Credit Suisse –which was already known–. Now Berset has announced that the total guarantees amount to 100 billion Swiss francs.
Already on Friday the government came to the conclusion that “the necessary confidence could no longer be restored and that a quick solution was essential to guarantee stability.”
The Swiss Finance Minister, Karin Keller-Sutter, has also intervened, explaining that a guarantee of 9,000 million Swiss francs will be given “a bit like insurance”. In principle, the bank will assume its losses and only if a certain threshold is reached will the public guarantee intervene.
In addition, the operation includes a risk premium that the bank must pay for the loans. “This solution also involves risks, but the risks for the State, for taxpayers, for the economy, for our country as a whole, but also for international financial stability, are significantly lower than in any other scenario,” he indicated. “It is a private solution, not a rescue,” she stressed.
Credit Suisse Chairman Axel Lehmann has reiterated that “given the extraordinary and unprecedented circumstances, the announcement of the merger is the best available outcome.”
UBS has highlighted for its part that the new entity has 5 trillion Swiss francs in investments, extends the bank’s leadership in the Swiss financial sector and that it maintains its “strong capitalization well above our target of 13 percent”.
