Banking giant UBS Group AG is buying troubled rival Credit Suisse Group AG for almost US$3.25 billion, in a deal orchestrated by regulators to stave off further market-shaking turmoil in the global banking system.
Swiss authorities urged UBS to take over its smaller rival after a plan for Credit Suisse to borrow up to 50 billion Swiss francs (US$53.93 billion) last week failed to reassure investors and the bank’s customers.
The deal was “one of great breadth for the stability of international finance,” Swiss President Alain Berset said as he announced it on Sunday night.
“An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system,” he said.
Switzerland’s executive branch, a seven-member governing body that includes Berset, passed an emergency ordinance allowing the merger to go through without shareholder approval.
Markets remain jittery despite the best efforts of regulators to restore calm. Shares fell yesterday in Asia, with Hong Kong’s Hang Seng index down 2.7 percent and Tokyo’s benchmark Nikkei 225 losing 1.2 percent. Bank shares in the region were lower, and futures in London and Frankfurt also fell.
Credit Suisse chairman Axel Lehmann called the sale to UBS “a clear turning point.”
“It is a historic, sad and very challenging day for Credit Suisse, for Switzerland and for the global financial markets,” Lehmann said, adding that the focus is now on the future and on Credit Suisse’s 50,000 employees, 17,000 in Switzerland.
Following news of the Swiss deal, the world’s central banks announced coordinated moves to stabilize banks, including access to a lending facility for banks to borrow US dollars if they need them, a practice widely used during the 2008 crisis.
“Today is one of the most significant days in European banking since 2008, with far-reaching repercussions for the industry,” Third Bridge Group Ltd analyst Max Georgiou said. “These events could alter the course of not only European banking but also the wealth management industry more generally.”
UBS chairman Colm Kelleher hailed “enormous opportunities” from the takeover and highlighted his bank’s “conservative risk culture” — a subtle swipe at Credit Suisse’s reputation for its gambles in search of bigger returns.
He said the combined group would create a wealth manager with over US$5 trillion in total invested assets.
UBS officials said they plan to sell off parts of Credit Suisse or reduce the bank’s size.
Swiss Minister of Finance Karin Keller-Sutter said the council “regrets that the bank, which was once a model institution in Switzerland and part of our strong location, was able to get into this situation at all.”
The combination of the two biggest and best-known Swiss banks, each with storied histories dating to the mid-19th century, amounts to a thunderclap for Switzerland’s reputation as a global financial center — putting it on the cusp of having a single national banking champion.
The deal follows the collapse of two large US banks last week that spurred a frantic, broad response from the US government to prevent further panic.
European Central Bank President Christine Lagarde lauded the “swift action” by Swiss officials, saying they were “instrumental for restoring orderly market conditions and ensuring financial stability.”
She said that the European banking sector is resilient, with strong financial reserves and plenty of ready cash.
The banks “are in a completely different position from 2008” during the financial crisis, partly because of stricter government regulation, she said.
The Swiss government is providing more than SF100 billion to support the takeover.
As part of the deal, approximately SF16 billion in Credit Suisse bonds are to be wiped out. European bank regulators use a special type of bond designed to provide a capital cushion to banks in times of distress. The bonds are designed to be wiped out if a bank’s capital falls below a certain level, and that was triggered by the government-brokered deal.
That has caused concern in the market for those bonds and for other banks that hold them.
The Financial Stability Board, an international body that monitors the global financial system, designated Credit Suisse as one of the world’s important banks, meaning that regulators feared a collapse could ripple throughout the financial system like that of Lehman Brothers Holdings Inc 15 years ago.
The Credit Suisse parent bank is not part of EU supervision, but it has entities in several European countries that are.
Credit Suisse has wielded considerable global influence, with US$1.4 trillion in assets under management. It has significant trading desks around the world, caters to the rich through its wealth management business, and is a major mergers and acquisitions adviser. The bank weathered the 2008 financial crisis without assistance, unlike UBS.
Credit Suisse is seeking to raise money from investors and roll out a new strategy to overcome an array of troubles, including bad bets on hedge funds, repeated shake-ups of its top management and a spying scandal involving UBS.
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