To prevent potential instability in the financial market, UBS Group has reportedly agreed to acquire Credit Suisse, its struggling competitor, for a total of $3.25 billion. The purchase was made under an “emergency ordinance”.
A previous report from the Financial Times claimed UBS had agreed to buy Credit Suisse for over $2 billion, citing a source familiar with the situation. But, a recent statement from UBS reveals that the deal’s entire consideration is roughly 3 billion Swiss francs, or $3.25 billion. This is a substantial discount compared to Credit Suisse’s market value of 7.5 billion Swiss francs, or $8 billion, as of March 17.
UBS Chairman Colm Kelleher stated that the acquisition is appealing to UBS shareholders but emphasized that it serves as an emergency rescue for Credit Suisse. Kelleher explained that the transaction is designed to safeguard the remaining value in the business while restricting UBS’s potential negative impact.
To seal the deal, Swiss officials agreed to amend the country’s policies to prevent a shareholder vote and to announce the deal over the weekend, prior to the opening of the market. In addition, the Swiss National Bank has reportedly agreed to provide UBS with more than $100 billion in liquidity as part of the deal.
The Swiss Federal Department of Finance, the Swiss Financial Market Supervisory Authority (FINMA), and the Swiss National Bank jointly started the conversations, and they are fully in favor of the transaction, according to UBS.
The Swiss government considered a full or partial nationalization of Credit Suisse as a contingency plan in case the deal with UBS fell through over the weekend.
European regulators are concerned that Credit Suisse’s rescue plan, which includes bondholder losses, may weaken investor trust in Europe’s financial system.
Since March 15, when Saudi National Bank, Credit Suisse’s largest shareholder, said that it would not expand its position in the Swiss bank due to regulations, UBS and Credit Suisse have been in negotiations with regulators. The remarks increased worries about the bank’s capacity to turn a profit and stoked worries about potential shareholder funding.
To help fund the development of Swiss railroads, Credit Suisse was established in 1856. The bank was regarded as the second-largest in the nation.