by (Bloomberg) — UBS Group AG has agreed to buy Credit Suisse Group AG in a landmark government-brokered deal aimed at stemming a crisis of confidence that has begun to ripple across global financial markets.
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The Swiss bank is paying more than $2 billion for its rival, according to people with knowledge of the matter. It will be an all-stock deal and priced at a fraction of what Credit Suisse closed on Friday, when the bank was valued at around 7.4 billion francs ($8 billion). Swiss officials and presidents of the two banks announced the deal at a press conference late on Sunday.
The Swiss National Bank is offering a $100 billion liquidity facility to UBS, while the government is providing a CHF9 billion guarantee to cover potential losses on assets that UBS is taking over. Regulator Finma said the moves “will trigger a full reduction in the face value of all Credit Suisse AT1 shares” worth CHF16 billion.
The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address a massive drop in Credit Suisse stocks and bonds last week after the collapse of smaller US creditors. A Swiss central bank liquidity support midweek failed to end a market drama that threatened to send customers or counterparties fleeing, with possible ramifications for the broader sector.
“It was imperative that we act quickly and find a solution as soon as possible,” Swiss National Bank President Thomas Jordan told the press conference.
US authorities have been working with their Swiss counterparts because both lenders have US operations and are considered systemically important in Switzerland, Bloomberg previously reported. Authorities sought a deal before markets reopened in Asia.
UBS had previously submitted an offer of around $1 billion, or 25 francs a share, for Credit Suisse, which the company has postponed, people with knowledge of the matter said on Sunday.
UBS has agreed to soften a material adverse change clause that would void the deal if its credit default spreads widen, the FT also informed people familiar with the matter. The adverse material change clause applies to the period between the signing and closing of the deal, the people said.
The acquisition of the 166-year-old lender marks a historic event for the nation and global finance. The former Schweizerische Kreditanstalt was founded by industrialist Alfred Escher in 1856 to finance the construction of the mountain nation’s railway network. It became a global powerhouse, symbolizing Switzerland’s role as a global financial center, before struggling to adapt to a changed banking landscape after the financial crisis.
UBS has its roots in some 370 separate institutions spanning 160 years, culminating in the merger of Union Bank of Switzerland and Swiss Bank Corporation in 1998. After emerging from a state bailout during the 2008 financial crisis, UBS built a reputation as one of the world’s leading wealth managers, serving high and ultra-high net worth individuals worldwide.
While Credit Suisse avoided a bailout during the financial crisis, in recent years it has been hammered by a series of explosions, scandals, leadership changes and legal issues. Clients withdrew more than $100 billion in assets in the final three months of last year as concerns about their financial health mounted, and outflows continued even after luring shareholders into a 4 billion franc capital raise. .
–With assistance from Myriam Balezou.
(Government guaranteed updates, AT1 depreciation in third paragraph.)
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