BERN: UBS agreed to buy rival Swiss bank Credit Suisse for 3 billion Swiss francs (US$3.23 billion) in stock and agreed to assume up to 5 billion francs in losses, in a shotgun merger engineered by Swiss authorities to avoid more market-shaking turmoil in global banking.
In a sign of a coordinated global response, the European Central Bank vowed to support euro zone banks with loans if needed, adding the Swiss rescue of Credit Suisse was “instrumental” for restoring calm.
“The euro area banking sector is resilient, with strong capital and liquidity positions,” the ECB said. “In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.”
US Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen said they welcomed the announcement by the Swiss authorities to support financial stability.
Swiss regulators were forced to step in and orchestrate a deal to prevent a crisis of confidence in Credit Suisse spilling over into the broader financial system. The deal is expected to close by the end of 2023.
The Bank of England welcomed moves by Swiss authorities to broker the takeover and said the British banking system was well-funded.
The Swiss banking marriage follows efforts in Europe and the United States to support the sector since the collapse of US lenders Silicon Valley Bank and Signature Bank.
Switzerland’s regulator FINMA said that there was a risk that Credit Swiss could have become “illiquid, even if it remained solvent, and it was necessary for the authorities to take action”.
To enable UBS to take over Credit Suisse, the federal government is providing a loss guarantee of a maximum of 9 billion Swiss francs for a clearly defined part of the portfolio, the government said.
This will be activated if losses are actually incurred on this portfolio. In that eventuality, UBS would assume the first 5 billion francs, the federal government the next 9 billion francs, and UBS would assume any further losses, the government said.
Swiss President Alain Berset said the government was confident that the takeover was the “best solution” for “restoring confidence that has been lacking the financial markets recently”.
Credit Suisse, the country’s second-biggest bank after UBS, “has been a source of worry for several months”, he said, adding that turbulence on the markets in recent days showed that “the necessary confidence” in the bank could not be restored.
Berset was speaking alongside UBS chairman Colm Kelleher and his Credit Suisse counterpart Axel Lehmann at a press conference in the capital Bern.
Finance Minister Karin Keller-Sutter told the press conference that bankruptcy for Credit Suisse could have caused “irreparable economic turmoil”.
Credit Suisse, a 167-year-old bank, has been the biggest name ensnared in market turmoil unleashed by the recent collapse of US lenders Silicon Valley Bank and Signature Bank, forcing it to tap US$54 billion in central bank funding last week.
“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.
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