Banking giant UBS acquires Credit Suisse for $3.2 billion

Banking giant UBS is buying its smaller rival Credit Suisse for $3.2 billion to prevent further market turmoil in the global banking system, Swiss President Alain Berset announced on Sunday evening.

Berset calls the announcement “one of great magnitude for the stability of international finances. An uncontrolled collapse of Credit Suisse would have unpredictable consequences for the country and the international financial system.”

The Swiss Federal Council, a seven-member governing body that includes Berset, has approved an emergency decree allowing the merger to go ahead without shareholder approval.

Axel Lehmann, chairman of Credit Suisse’s board of directors, called the deal “a clear turning point”.

“This is a historic, sad and very challenging day for Credit Suisse, for Switzerland and for global financial markets,” said Lehmann, adding that the focus is now on the future and in particular on Credit Suisse’s 50,000 employees. 17,000 of which are in Switzerland.

Colm Kelleher, chairman of UBS, hailed the “huge opportunity” arising from the acquisition and highlighted his bank’s “conservative risk culture” – a subtle joke about Credit Suisse’s culture, which rewards higher returns for more exciting, riskier gambling. He said the combined group would create an asset manager with more than $5 trillion in total assets under management.

Berset said the board has agreed to guarantee Credit Suisse a total of $162 billion in liquidity, far more than the $54 billion publicly announced. But that turns out not to be enough.

“We realized that the outflow of liquidity and the volatility of the markets showed that the necessary confidence could not be restored and that a quick solution that guaranteed stability was essential.”

Finance Minister Karin Keller-Sutter said the board of directors “regrets that the bank, which was once a flagship institution in Switzerland and part of our strong location, was allowed to find itself in this situation in the first place.”

The combination of the two largest and best-known Swiss banks, each with turbulent histories dating back to the mid-19th century, befits Switzerland’s reputation as a global financial center and is poised to have one national champion in banking .

While UBS buys Credit Suisse, UBS officials plan to sell off parts of Credit Suisse or downsize the bank in the coming months and years.

The Swiss central bank has agreed to provide a $108 billion loan backed by a federal default guarantee to support the transaction, which is expected to close by the end of the year.

Berset said the Bundesrat – Switzerland’s executive branch – has been discussing a protracted difficult situation at Credit Suisse since the start of the year and has held urgent meetings over the past four days amid growing concerns about financial health that have been swooning over the stock price. and haunted the specter of the 2007-2008 financial crisis.

Investors and banking industry analysts were still processing the deal, but one analyst was angry at the news because the deal could damage Switzerland’s reputation as a global banking center.

“A nationwide reputation for prudent financial management, solid regulatory oversight and, quite frankly, a bit dull and boring when it comes to investing has faded,” Octavio Marenzi, CEO of consulting firm Opimas LLC, said in an email. mail.

Marenzi added that he expects Switzerland’s direct-democracy model of government is likely to lead to lawsuits and votes against this deal, potentially leading to more chaos.

Credit Suisse is classified as one of the world’s systemically important banks by the Financial Stability Board, an international body that oversees the global financial system. That means regulators believe the unchecked failure will send ripples through the financial system, much like the collapse of Lehman Brothers 15 years ago.

The deal follows the collapse of two major US banks last week, sparking an angry, broad response from the US government to avoid further banking panic. Still, global financial markets have been on their way since shares of Credit Suisse began falling this week.

Many of Credit Suisse’s problems are unique and do not overlap with the weaknesses of Silicon Valley Bank and Signature Bank, whose failures led to a major bailout of the Federal Deposit Insurance Corp. and brought down the Federal Reserve. Consequently, their demise does not necessarily mean the start of a financial crisis like in 2008.

The deal caps off a highly volatile week for Credit Suisse, particularly on Wednesday as shares fell to record lows after its largest investor, the Saudi National Bank, said it would stop investing money in the bank to prevent the bank from collapsing. regulation is not defeated. step in when his stake is up about 10%.

Shares fell 8% to 1.86 francs ($2) on the Swiss stock exchange on Friday. The share had a long downward trend: in 2007 it was quoted at more than 80 francs.

The current troubles began after Credit Suisse reported Tuesday that managers had identified “material weaknesses” in the bank’s internal controls over financial reporting late last year. This fueled fears that Credit Suisse could be the next domino to fall.

Although smaller than Swiss rival UBS, Credit Suisse still wields significant clout with $1.4 trillion in assets under management. The firm has major commercial banks around the world, serves the wealthy through its asset management business, and is a key advisor to global companies on mergers and acquisitions. In 2008, Credit Suisse didn’t need government support during the financial crisis, but UBS did.

Despite the banking turmoil, the European Central Bank on Thursday approved a big rate hike of half a point to try to halt stubbornly high inflation and said the European banking sector was “resilient” with strong finances.

ECB President Christine Lagarde said banks were in a “completely different situation than in 2008” during the financial crisis, partly due to tighter government regulation.

The Swiss bank has been pushing to raise money from investors and implement a new strategy to solve a series of problems, including bad bets on hedge funds, repeated top management reshuffles and an espionage scandal involving UBS.

Associated Press writers Frank Jordans and Emily Schultheis in Berlin, Barbara Ortutay in Oakland, and Chris Rugaber in Washington, D.C. contributed to this report.