UBS on Sunday (March 19) agreed to buy the troubled rival bank Credit Suisse for $3.25 billion after the two banks held marathon talks, the Financial Times reported.
Last week, Credit Suisse shares lost a quarter of their value. On Friday, the bank was valued at the equivalent of about $8 billion at market close.
UBS had been in talks to finalise a mammoth takeover of Credit Suisse and reassure investors before the markets reopened Monday. Switzerland’s banks have been in urgent negotiations throughout the weekend, with the government, central bank, and financial regulators all involved.
Speaking to Reuters, Beat Wittmann, the chairperson and partner of Porta Advisors, said on Sunday that the deal made a lot of sense.
“And if it’s diligently and fairly executed and of course, also a new leadership on the board level and CEO level announced that we’ll not only fully restore trust in the system, but I think this would create a very, very strong bank. And if well-managed, then, of course, UBS would do an absolutely fantastic deal here and would be significantly strengthened in that core strategy. Of course, there will be antitrust issues and some businesses will have to be sold out or carved out in order to meet regulatory requirements,” Wittmann said.
“Well, I have been surprised because the market capitalisation on Friday (March 17) was $8 billion. So this is $7 billion less, this offer. And I think that this will cause a lot of discussions. Why? Because it will raise a lot of questions about why this valuation is so low and why the board of Credit Suisse and also the Swiss authorities have waited for so long to address this problem. And if this valuation remains at $1 billion, then it just means that the problems and the legacies, the situation of Credit Suisse is in a much worse shape than expected or seen by Friday,” he added.
Reuters earlier reported that UBS was seeking government guarantees of about $6 billion for the takeover of Credit Suisse. A source told Reuters the guarantees would cover the cost of winding down parts of Credit Suisse and potential litigation charges.
The source added that talks to resolve the crisis of confidence in Credit Suisse were encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combined.
(With inputs from agencies)
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