UBS buys Credit Suisse in historic deal to end crisis

(Bloomberg) — UBS Group AG agreed to buy Credit Suisse Group AG in a historic government-brokered deal aimed at stemming a crisis of confidence that had been sweeping global financial markets.

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The Swiss bank is paying more than $2 billion for its competitor, according to people familiar with the matter. It will be an all-share deal and will cost a fraction of Credit Suisse’s closing price on Friday, when the bank was valued at around 7.4 billion Swiss francs ($8 billion). Swiss officials and heads of the two banks announced the deal in a press conference late Sunday.

The Swiss National Bank is offering UBS a $100 billion liquidity line, while the government is providing a CHF9 billion guarantee to cover potential losses on assets UBS is taking over. Regulator Finma said the moves would trigger “a full CHF16 billion write-down of the par value of all AT1 shares in Credit Suisse.”

The plan, negotiated in hastily arranged crisis talks over the weekend, aims to address a massive collapse in Credit Suisse stocks and bonds over the past week following the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank mid-week failed to end a market drama that threatened to drive customers or counterparties away, with possible repercussions for the broader industry.

“It was essential that we act quickly and find a solution as soon as possible,” said the President of the Swiss National Bank, Thomas Jordan, at the press conference.

US authorities have worked with their Swiss counterparts because both lenders operate in the US and are considered systemically important in Switzerland, Bloomberg previously reported. Authorities struggled to reach an agreement before markets reopened in Asia.

UBS had previously made an offer of around $1 billion, or CHF0.25 a share, for Credit Suisse, which the firm had pushed back, people familiar with the matter said earlier Sunday.

UBS agreed to a relaxation of a material adverse amendment clause that would void the deal if loan default spreads skyrocket, the FT also reported to people familiar with the matter. The material adverse change clause applies to the period between signing and closing of the deal, the people said.

The acquisition of the 166-year-old lender marks a historic event for the nation and global finance. The then Schweizerische Kreditanstalt was founded in 1856 by the industrialist Alfred Escher to finance the expansion of the railway network in the mountainous region. It had evolved into a global powerhouse, symbolizing Switzerland’s role as a global financial hub before struggling to adjust to a changed banking landscape in the wake of the financial crisis.

UBS traces its roots to around 370 different institutions over 160 years, culminating in the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation. After emerging from a government bailout during the 2008 financial crisis, UBS built a reputation as one of the world’s largest wealth managers, serving high net worth and high net worth individuals worldwide.

While Credit Suisse avoided a bailout during the financial crisis, it has been plagued by a series of blasts, scandals, leadership changes and legal troubles in recent years. Clients had withdrawn more than $100 billion in assets in the last three months of last year as concerns mounted over its financial health, and outflows continued even after it gave shareholders a 4 had tapped into billions of francs.

–With the support of Myriam Balezou.

(Updates with government guarantee, AT1 write-off in third paragraph.)

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