UBS has agreed to buy its struggling rival Credit Suisse for $3.25 billion on March 19 as part of an "emergency decree" to prevent financial market instability. An earlier report in the Financial Times said UBS had agreed to buy Credit Suisse for more than $2 billion, citing a person familiar with the matter. However, a recent UBS statement put the total value of the deal at around 3 billion Swiss francs, or $3.25 billion. That's still a significant discount to Credit Suisse's March 17 market capitalization of 7.5 billion Swiss francs, or $8 billion.
"This acquisition is attractive to UBS shareholders, but let's be clear that as far as Credit Suisse is concerned, this is a bailout. We have structured a transaction that will preserve the residual value of the business, While limiting our downside risk," UBS Chairman Colm Kelleher said.
To complete the deal, Swiss authorities agreed to amend national regulations to bypass a shareholder vote and announced the deal before the market opened over the weekend. Additionally, the Swiss National Bank has reportedly committed to providing UBS with over $100 billion in liquidity as part of the deal.
UBS said in a statement that the discussions were jointly initiated by the Swiss Federal Ministry of Finance, the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank, and that the acquisition has their full support. Should the UBS deal fall through over the weekend, Swiss authorities considered alternatives to Credit Suisse, including full or partial nationalization of the bank as an emergency option.
Credit Suisse's bailout would also include losses for bondholders, raising concerns among European regulators that it would erode investor confidence in Europe's financial sector. UBS and Credit Suisse have been in talks with regulators since March 15, after Credit Suisse's largest shareholder, the National Bank of Saudi Arabia, said it would not increase its investment in the Swiss lender for regulatory reasons. The comments heightened concerns about the bank's profitability, raising concerns about a possible shareholder raise.
Credit Suisse was established in 1856 to finance the expansion of Swiss railways. It is considered the second largest bank in the country.
