UBS To Acquire Credit Suisse

UBS (Union Bank of Switzerland) is all set to acquire Credit Suisse for $3.2 Billion. The Swiss Government stepped in to synthesize the deal which is expected to close by the end of 2024 .

UBS bank has agreed to acquire Credit Suisse for $3.2 Billion along with $5.4 Billion in losses. The merger deal has been designed by Swiss authorities to avoid further turbulence in the Swiss market and in the global banking sector. The Swiss authorities were forced to participate in order to control the turmoil in the banking sector. This was done in an attempt to control the confidence crisis in the banking sector. This historic deal is expected to close by the end of 2024.

“Bankruptcy of the globally important bank would have led to irreparable damages for financial markets.”, The Finance Minister of Switzerland said.

It is still unclear whether this deal would successfully shore up investors’ confidence. Reactions are to be noted as Asia’s, Australia’s and New Zealand’s Markets open.

The Swiss Central Bank said that it would “provide enough liquidity” to the merged bank. The statement was recorded in a news conference in the Capital City of Bern. They said that the deal involved “100 Billion Swiss Francs for liquidity assistance to UBS Bank and Credit Suisse.

“As UBS takes over Credit Suisse, a solution has been synthesized to maintain financial stability and protect the Swiss Economy in these tough times.”, The Swiss Central Bank said.

Direct influence of the deal on jobs is still unclear. “UBS aims to save costs by $7 Billion by 2027”, said UBS bank officials. Credit Swiss Shareholders shall receive 1 UBS Share for every 22.48 Credit Suisse shares held. This equals to 0.76 Swiss Francs per share for the total of 3 Billion Francs, said UBS.

The Swiss Financial Market Supervisory Authority (FINMA) said that it will be “possible to continue all the business activities of the banks with no restrictions or interruptions.” FINMA Said that it will “Coordinate with national and international authorities” which include the British Prudential Authority and the US Federal Reserve.

The Swiss regulator said that “Additional Tier-1 shares with face value of 16 billion ($17.2 Billion) Francs will be written down” as the Swiss Government provides support.

Officials have been on toes in the process of rescuing the 167 year old bank in collaboration with the world’s largest wealth managers as the second and third largest banking failures in the US were seen this week. The Credit Suisse deal shall lead to massive repercussions in the global banking sector.

Senior executives in the knowledge of the deal said that “a few major European banks are examining the scenario and whether it would affect the regional banking sector”. The Federal Reserve and the European Central Bank are being expected to step in with stronger signals of help.

These negotiations followed efforts in Europe and the US to stabilize the Banking sector collapse in the US after the Silicon Valley Bank and the Signature Bank collapsed. US President Joe Biden’s administration attempted to secure consumer deposits. The Swiss Government on the other hand, offered billions of dollars to Credit Suisse to control the massive turmoil.

The series of events that includes the fall of the American banking sector and the Credit Suisse episode might show repercussions in the financial markets this week.

Credit Suisse shares reportedly lost over 25% of their value last week. This forced the Swiss Government to offer them over $54 billion from Central Bank Funding in order to recover from the scandal that led to the loss of investors’ and clients’ confidence.

The Swiss Government is also mulling to impose the losses on Credit Suisse bondholders as a part of the rescue operation of Credit Suisse.

European regulators, however, are unwelcome of any such mover as it risks losing investors’ confidence in the entire European region.

Bank Of England has signaled that it would back the proposed takeover of Credit Suisse. US authorities are also working with Swiss authorities in carrying out the big deal.

The two bank’s fortunes have seen fluctuations in the past one year. While UBS earned $7.6 billion in profits, Credit Suisse lost $7.9 billion in losses. Credit Suisse shares have lost almost ¾ th of their value since last year.

It is to be seen how this deal affects the global financial markets. Credit Suisse’s acquisition by UBS is all set to send ripples in the global financial markets as this deal holds immense importance in the global banking sector, both historically as well as monetarily.