A sign of Credit Suisse is seen behind a clock at the headquarters of Switzerland's second-biggest bank in Zurich on March 18, 2023. - Switzerland's largest bank, UBS, is in talks to buy all or part of Credit Suisse, according to a report by the Financial Times. Credit Suisse came under pressure this week as the failure of two US regional lenders rocked the sector. (Photo by Fabrice COFFRINI / AFP) (Photo by FABRICE COFFRINI/AFP via Getty Images) - FABRICE COFFRINI/AFP via Getty Images
Credit Suisse has been sold in a cut-price deal aimed at staving off a new financial crisis.
The 167-year-old lender, which was valued at more than £65bn at its peak, has been taken over by arch-rival UBS in a £2.6bn deal just hours before financial markets opened, amid fears of panic if the bank's value slid further when trading began.
The merger of Credit Suisse and UBS is likely to lead to thousands of job losses in the City of London. The two banks currently employ around 11,000 people between them in the UK.
Credit Suisse's banking operations appeared to be running business as usual at its major offices in Asia on Monday.
Credit Suisse was considered one of a clutch of global banks so important its failure would trigger a financial crash.
The Bank of England and Treasury both welcomed the bank’s sale, saying it would "support financial stability".
UBS CEO Ralph Hamers said there were still many details to be worked through.
"I know that there must be still questions that we have not been able to answer," he said. "And I understand that and I even want to apologise for it."
Chairman of the Board of Directors of Credit Suisse, Axel Lehmann, Chairman of the Board of Directors of UBS, Colm Kelleher and Federal Councillor and chief of the finance federal department Karin Keller-Sutter attend a news conference on Credit Suisse after UBS takeover offer, in Bern, Switzerland, March 19, 2023. REUTERS/Denis Balibouse - REUTERS/Denis Balibouse
Traders last night cut back bets on a 0.25 percentage point increase this week in the wake of the news.
At a hastily organised press conference on Sunday evening, Alain Berset, president of Switzerland, said the rescue was needed to avoid “unthinkable” consequences for the country’s economy and global markets.
Karin Keller-Sutter, Swiss finance minister, said the failure of Credit Suisse risked “irreparable economic turmoil in Switzerland and throughout the world.”
Swiss officials held talks with Jeremy Hunt, the Chancellor, and Janet Yellen, the US Treasury Secretary, over the weekend about the rescue efforts.
Credit Suisse found itself in crisis amid a growing panic over the health of global banks.
A mass sell-off in stock markets over the last two weeks has wiped almost $500bn from the value of global banks.
A $54bn loan from the Swiss National Bank last week failed to stop withdrawals at Credit Suisse, with $10bn said to have been pulled on Friday alone.
There are fears that a regional banking crisis in America could drag on, with President Joe Biden reportedly calling on Wall Street tycoon Warren Buffett for advice.
Mr Biden’s conversations with Mr Buffett, the chairman of Berkshire Hathaway, covered the possibility of him making further investments in the US banking sector, according to Bloomberg.
He previously stepped in to help finance both Goldman Sachs and Bank of America in the wake of the 2008 financial crisis, helping to shore-up confidence at critical junctures.
Credit Suisse, a once venerable Swiss bank to the privately wealthy that has more than £470bn in assets, has been beset by scandal in recent years. It has lost billions through a series of missteps and fines.
Warren Buffett, CEO of Berkshire Hathaway, attends the 2019 annual shareholders meeting in Omaha, Nebraska, May 3, 2019. (Photo by Johannes EISELE / AFP) (Photo by JOHANNES EISELE/AFP via Getty Images) - JOHANNES EISELE/AFP via Getty Images
It came under pressure after a major shareholder said it would put no more money into the business, prompting a flood of clients to pull their money.
The Swiss Government had considered nationalising the bank if talks with UBS had failed.
Swiss politicians rapidly rewrote the country’s laws over the weekend to ensure the deal could be confirmed, bypassing shareholders.
Officials had raced to negotiate the shotgun merger of the two national banks before the opening of stock markets in Asia on Sunday evening, fearing a market meltdown if a solution had not been reached.
The Bank of England was reported by Sky News to have waived through the deal. Threadneedle Street last week held talks with British lenders, asking them to explain their current risk profiles on bond markets amid the turmoil at international rivals, The Telegraph reported.
A Bank of England spokesman said: “We welcome the comprehensive set of actions set out by the Swiss authorities today in order to support financial stability.
“We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation. The UK banking system is well capitalised and funded, and remains safe and sound.”
A Government spokesman said: “The UK Government welcomes the steps taken today by the Swiss authorities in relation to Credit Suisse to support financial stability, and will continue to engage with the FCA and the Bank of England as is usual.”
The Swiss National Bank (SNB) said the deal would “secure financial stability and protect the Swiss economy in this exceptional situation.”
Central banks take emergency measures after Credit Suisse rescue deal
By Matthew Field and Matt Oliver
The Federal Reserve last night agreed to increase the supply of US dollars to central banks around the world in a bid to stop a cash crunch in markets.
Late last night six of the world’s biggest central banks agreed to ramp-up swap lines, agreements to exchange currencies between each other, as officials and investors braced for another week of intense market volatility.
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank will increase currency trading between each other from weekly to daily to ensure there are enough dollars following throughout the global system to keep financial markets operating.
Swap lines were a key tool used during the 2008 financial crisis to stop markets seizing up. The Bank of England said the latest action would “ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses.”
Daily trading will commence from today and last until at least April.
Banks were bracing for more volatility in markets tomorrow after Swiss officials forced through a hastily arranged $3.2bn (£2.3bn) rescue deal for troubled Credit Suisse.
The 167-year-old bank was tonight sold to arch-rival UBS in a cut price deal intended to stabilise the Swiss financial system and stop the emergency escalating into a full-blown European banking crisis.
The Swiss National Bank has agreed to lend UBS up to 100 billion Swiss franc (£88bn) in emergency liquidity in an effort to shore up confidence.
The state also agreed to cover up to 9 billion Swiss francs in losses from certain parts of Credit Suisse, which is facing multiple legal battles.
However, observers warned that efforts to shore up confidence could fall short.
Mohamed El-Erian, chief economic advisor to Allianz, warned that UBS stock “may well come under pressure” on Monday morning as details of the deal emerged.
The cost of insuring UBS’s debt climbed in trading on Sunday. The bank’s credit default swaps, used to gauge its credit risk, widened by 40 basis points 215 bps on five-year contracts, Bloomberg reported.
Credit Suisse was forced into the arms of UBS after a run on the bank this week.
FINMA, Switzerland’s financial regulator, said tonight: “The Credit Suisse Group is experiencing a crisis of confidence, which has manifested in considerable outflows of client funds. This was intensified by the upheavals in the US banking market in March 2023.
“There was a risk of the bank becoming illiquid, even if it remained solvent, and it was necessary for the authorities to take action in order to prevent serious damage to the Swiss and international financial markets.”
Marc Rubinstein, a banking analyst who writes the Net Interest financial newsletter, said: “It’s distressed, clearly. It puts it alongside [the mergers of] Lloyds and HBOS, and JPMorgan and Bear Stearns.”
The combination was rushed through in a little over 48-hours of negotiations.
Under the terms of the deal, Credit Suisse investors will receive just 1 share in the combined entity for every 22.48 shares they hold. The deal values Credit Suisse at less than half what it was worth at close of trade on Friday.
Legal & General, Schroders and HSBC all rank among Credit Suisse’s top 50 shareholders, though each own less than 1pc of the bank.
Holders of $17bn in Credit Suisse “additional tier 1” bonds saw their holdings wiped out as their value was written off to zero.
The deal is likely to provoke frustration from UBS shareholders, who will not get a vote on the transaction, after Swiss regulators and politicians issued an emergency directive to override market rules.
UBS said: “Pursuant to the emergency ordinance, which is being issued by the Swiss Federal Council, the merger can be implemented without the approval of shareholders.”
Credit Suisse was rated as one of 30 “global systemically important banks” viewed as too big to fail in the wake of the last financial crisis.
The crisis at Credit Suisse follows wider concerns about the global banking sector. Earlier this month Silicon Valley Bank, the Californian lender, collapsed after suffering billions of dollars in losses on wayward interest rate bets.
Credit Suisse has struggled with a series of scandals and mishaps in recent years but saw its share price plunge after its biggest shareholder, the Saudi National Bank, said it would not stump up any more funding.
Despite agreeing to a $54bn liquidity line with the Swiss central bank in the middle of this week, a flood of withdrawals continued and its shares fell by 10pc on Friday alone.
On Sunday, Colm Kelleher, UBS chairman, said the deal to combine with its rival was “in the best interest of Switzerland and protects our shareholders”. He said UBS planned to downsize Credit Suisse’s investment banking arm and would cut its risk taking, a move likely to lead to large job cuts in London.
Alex Lehmann, Credit Suisse chairman, said it was a “historic, sad and very challenging day” for the bank.
The Swiss National Bank said: “With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation.”
