Banking giant UBS is buying crisis hit Credit Suisse for almost $3.2 billion, in a deal brokered by the Swiss regulators in an effort to avoid market-shaking turmoil in the global banking system. UBS agreed to assume to $5.4 billion in losses, the historic deal is expected to close by the end of 2023.
Shares of Credit Suisse and other banks plunged last week after the major failure of two of the US banks that sparked concerns about the potentially shaky institutions in the global financial system. The move was welcomed by Washington, London, and Brussels as one that would support financial stability.
Credit Suisse is among the 30 financial institutions known as globally systematically important banks, and the authorities and government worried about the fallout if it were to fail.
The issue for Credit Suisse started when it announced about some ‘material weakness’ relating to financial reporting. This sparked jitters across the global markets and sent shares plummeting as nervous investors rushed to limit their exposure. The stock plunged as much as 30 per cent triggering a trading halt. The bank was forced to tap $54 billion in central bank funding as it tries to recover from scandals that have undermined the confidence of investors and clients.
Credit Sussie said in a statement that UBS would take it over for ‘a merger consideration of three billion Swiss francs ($3.25 billion)’, with Credit Sussie shareholders receiving one UBS share for 22.48 Credit Sussie shares.
Credit Suisse Additional Tier 1 shares with a nominal value of around 16 billion Swiss francs ($17.2 billion) will be written down completely after the Swiss government provided support, the Swiss regulator said, as Reuters reported.
"With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation," the Swiss central bank said.
Post the news of the deal, the world’s central bank announced coordinated moved to stabilize banks in the coming weeks. As per the AP report, this includes daily access to a lending facility for banks looking to borrow US dollars if they need them, a practice which was widely used during the 2008 financial crisis. After the collapse of Lehman Brothers, such swap lines had been trapped for $580 billion. Such swap lines were also rolled out during market turmoil in the early stages of Covid-19 pandemic.
It was not yet clear if the deal is enough to restore trust in lenders around the world. The indication will start coming up with the opening bell in Asia, Australia and New Zealand.