UBS agrees to buy Credit Suisse after increasing its offer to more than $2 billion

UBS has agreed to buy Credit Suisse after increasing its offer to more than $2 billion following urgent talks today.

The banking giant will pay more than 0.50 francs ($0.5401) per share in its shares, the Financial Times reported, citing sources, well below Credit Suisse’s closing price of 1.86 francs on Friday.

The Swiss National Bank also agreed to provide a $100 billion liquidity line to Credit Suisse as part of the deal.

According to the report, UBS has agreed to ease a material negative change clause that would void the deal if credit default margins jump.

The agreement follows meetings held earlier today in Bern between the Federal Council, the Swiss National Bank, UBS and Credit Suisse to settle the bank’s future.

Confirming the deal at a press conference this evening, Swiss Finance Minister Karin Keller-Sutter said that ‘the bankruptcy of a globally important bank would have caused irreparable economic turmoil in Switzerland and throughout the world.

For this reason, Switzerland had to take on responsibilities beyond its borders.

These efforts have borne fruit. The Federal Council is convinced that the takeover of Credit Suisse by UBS has laid the foundations for further stability in Switzerland and internationally.

The Financial Times, which was first on Friday to report on the possibility of Credit Suisse being swallowed up by Switzerland’s largest bank, said UBS had offered to buy it for up to $1bn (£820m).

The Financial Times said the deal would be worth 25 cents (0.23 Swiss francs) per Credit Suisse share.

But the 167-year-old bank rejected UBS’ initial offer, backed by its largest shareholders, believing it was too low and settling for $2 billion.

The authorities urged UBS to go over the deal before the stock exchange reopened on Monday in order to reassure investors and avoid spreading panic in the markets. A merger of this magnitude usually takes months to complete.

The newspaper SonntagsZeitung called it the “fusion of the century”.

“The unthinkable becomes reality: Credit Suisse is about to be taken over by UBS,” said the weekly.

She claimed that the government, FINMA and the Swiss National Bank “see no other option”.

in Press Conference Swiss President Alain Berset said on Sunday evening that the agreement had the support of the Federal Council and the negotiating parties.

He said the takeover was the best way to restore confidence in the financial system.

After suffering sharp falls in the stock market last week, Credit Suisse’s share price closed Friday at CHF1.86, valuing the bank at just over $8.7 billion.

Credit Suisse share price fell from CHF 12.78 in February 2021 after a series of scandals.

Despite the decline, Credit Suisse managed to negotiate terms of selling twice the initial UBS offer.

While smaller than its Swiss rival UBS, Credit Suisse still wields significant leverage, with $1.4 trillion in assets under management.

The company has important commercial offices all over the world, provides its services to the rich and wealthy through its wealth management business, and is a key advisor to global companies in mergers and acquisitions.

Notably, Credit Suisse did not need government aid in 2008 during the financial crisis, while UBS did.

European Central Bank President Christine Lagarde said banks were “in a very different position than in 2008” during the financial crisis, in part because of tougher government regulation.

The Swiss bank has been pressing to raise money from investors and roll out a new strategy to overcome a host of problems, including bad bets on hedge funds, frequent jerks of its top management and a spying scandal involving UBS.

The Financial Times, citing unnamed sources, said that under Swiss rules, UBS normally has to consult shareholders over a six-week period, but it can use emergency procedures to skip the consultation period and shareholder voting.

Members of the Swiss government, including President Alain Berset, were reportedly photographed heading to the Finance Ministry in Bern early Sunday.

The government did not respond when contacted on Sunday.

“Even if the authorities force it to do so, Credit Suisse’s management will only choose (the UBS acquisition) if it has no other solution,” said David Benamo, chief investment officer at Paris-based alternative investments axiom.

The Association of Swiss Bankers said there was “a lot at stake” for Credit Suisse’s 17,000 employees, “and therefore also for our economy”.

“In addition, tens of thousands of jobs outside the banking industry are likely to be at risk,” she added, calling for the formation of a task force to manage the situation.

Like UBS, Credit Suisse is one of 30 banks around the world that are considered global systemically important banks – so important to the international banking system that they are considered too big to fail.

But the market action seemed to indicate that the bank was seen as a weak link in the chain.

“We are now waiting for a final and structural solution to the problems of this bank,” French Finance Minister Bruno Le Maire told Le Parisien newspaper.

Amid contagion fears after the collapse of two US banks, Credit Suisse’s share price plunged more than 30 percent on Wednesday to a new record high of CHF1.55. This led to the Swiss National Bank stepping in overnight with a $54 billion lifeline to boost investor confidence.

Still, analysts at US investment bank JPMorgan say a loan from the Swiss National Bank will not be enough to assuage investor fears and “the status quo is no longer an option”.

Although shares rose 35% on Thursday, they said the takeover was still the most likely outcome for Credit Suisse – and they correctly predicted UBS would be looking to snap up the bank.

In 2022, Credit Suisse posted a net loss of $7.9 billion and expects a “significant” pre-tax loss this year.

The unrest follows investor concerns about the accuracy of Credit Suisse’s financial reporting and the bank’s relationship with investors, as well as a series of scandals dating back several years.

The bank cut headcount by 9,000 in October last year, seven months after it appointed a new chief executive, Ulrich Koerner, to replace Antonio Horta-Osorio, who resigned after it was revealed he had breached Covid rules.

That summer, Credit Suisse was found guilty of failing to prevent money laundering by a Bulgarian cocaine-smuggling ring.

The extent of the bank’s problems was evident by February 2023, when it reported its biggest annual loss since 2008 — down $1.5 billion in the fourth quarter.

On the 28th of February It was ruled that Credit Suisse had “seriously breached” its risk management obligations in its relationship with disgraced lender Lex Greensill and his companies.

This came to a head last week when Credit Suisse admitted there was a “fundamental weakness” in its financial reporting as it canceled bonuses for senior executives.

Then the National Bank of Saudi Arabia – Credit Suisse’s largest shareholder – said it would no longer buy the shares due to regulatory problems, sending share prices down another 25%.

More recently, in October, the Saudi bank was looking to take advantage of cheap stocks – down 55% in the wake of a series of scandals and shake-ups at the top – that they had It is considered “steal” at that time.

On Thursday, Credit Suisse announced that it would borrow up to $53.68 billion from the Swiss National Bank, hours after offering it a loan to support liquidity.

JPMorgan expected the bank to be taken over – most likely by UBS – despite a lifeline from the Swiss National Bank.