UBS takes over Credit Suisse: 10 things to know about this historic deal
2 min read 20 Mar 2023, 06:36 AM ISTUBS takes over Credit Suisse: The deal follows the collapse of two large U.S. banks last week that spurred a frantic, broad response from the U.S. government to prevent any further panic
PremiumIn an effort to avoid further market-shaking turmoil in the global banking system, UBS is buying troubled rival Credit Suisse for almost $3.25 billion. The deal was “one of great breadth for the stability of international finance," said Swiss President Alain Berset as he announced it Sunday night. "An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system." The Federal Reserve and Treasury Department welcomed the deal, as did the European Central Bank.
10 things to know about this historic deal
1) The Swiss bank is paying 3 billion francs ($3.3 billion) for its rival in an all-share deal that includes extensive government guarantees and liquidity provisions. The price per share marked a 99% decline from Credit Suisse’s peak in 2007.
2) The deal follows the collapse of two large U.S. banks last week that spurred a frantic, broad response from the U.S. government to prevent any further panic.
3) As part of the deal, approximately 16 billion francs ($17.3 billion) in Credit Suisse bonds will be wiped out. European bank regulators use a special type of bond designed to provide a capital cushion to banks in times of distress. But these bonds are designed to be wiped out if a bank’s capital falls below a certain level, which was triggered as part of this government-brokered deal.
4) The combination of the two biggest and best-known Swiss banks, each with storied histories dating to the mid-19th century, amounts to a thunderclap for Switzerland’s reputation as a global financial center — leaving it on the cusp of having a single national champion in banking.
5) Credit Suisse is among the 30 financial institutions known as globally systemically important banks, and authorities worried about the fallout if it were to fail.
6) Following news of the Swiss deal, the world’s central banks announced coordinated financial moves to stabilize banks in the coming week. This includes daily access to a lending facility for banks looking to borrow U.S. dollars if they need them, a practice which widely used during the 2008 financial crisis.
7) Three months after Lehman Brothers collapsed in September of 2008, such swap lines had been tapped for $580 billion. Added swap lines were also rolled out during market turmoil in the early stages of the COVID-19 pandemic in March of 2020.
8) Many of Credit Suisse’s problems are unique and do not overlap with the weaknesses that brought down Silicon Valley Bank and Signature Bank, whose failures led to a significant rescue effort by the Federal Deposit Insurance Corp. and the Federal Reserve. As a result, their downfall does not necessarily signal the start of a financial crisis similar to what occurred in 2008.
9) Its current troubles began after Credit Suisse reported on Tuesday that managers had identified “material weaknesses" in the bank’s internal controls on financial reporting as of the end of last year. That fanned fears that Credit Suisse would be the next domino to fall.
10) Credit Suisse is designated by the Financial Stability Board, an international body that monitors the global financial system, as one of the world’s important banks. This means regulators believe its uncontrolled failure would lead to ripples throughout the financial system not unlike the collapse of Lehman Brothers 15 years ago.
-With agency inputs
