The crisis-ridden Credit Suisse (CS) loses its independence after 167 years and ends up in the arms of UBS. The Swiss industry leader is taking over CS by way of a share exchange at a price of CHF 3 billion. This was agreed by the parties on Sunday evening after intensive and hectic negotiations under the auspices of the Swiss National Bank (SNB), the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss government.

Johannes Ritter

Correspondent for politics and economics in Switzerland.

  • Follow I follow

The merged bank will manage assets of more than $3.4 trillion. "This acquisition is attractive for UBS shareholders, but one thing is clear – as far as Credit Suisse is concerned, this is an emergency rescue," said Chairman Colm Kelleher. He will also become president of the new bank, UBS CEO Ralph Hamers the CEO.

Purchase price well below market value

The price of CHF 3 billion is well below CS's current market value of CHF 7.4 billion. Initially, according to a report in the Financial Times, UBS had even offered only one billion, which CS and its major shareholders rejected as too low. In order to reduce any risks to UBS, the Swiss government is also providing UBS with a guarantee of CHF 9 billion to cover potential losses from certain assets that UBS assumes as part of the transaction. According to Karin Keller-Sutter, Finance Minister of Switzerland, this guarantee only comes into effect if any losses incurred by UBS exceed a certain threshold. It's like insurance. The Swiss National Bank is also providing CS and UBS with extraordinary liquidity assistance totalling CHF 200 billion. Recourse to emergency law, the government has decreed that the takeover does not require approval from the shareholders of the two banks.

The ultimate goal was to protect Switzerland's interests, Keller-Sutter said. The aim is to contribute to the stabilisation of the international financial markets, to protect the Swiss financial centre and also to protect the Swiss economy. "A failure of CS would have resulted in serious economic distortions in Switzerland and other countries." In Keller-Sutter's view, a resolution of the bank would have "almost certainly triggered a financial crisis". And the alternative of a direct state intervention would have been an enormous risk for Switzerland. The takeover by UBS is the best measure to restore confidence in CS.

As recently as last Thursday, it looked as if Credit Suisse could at least get a grace period. On that day, the National Bank had given the scandal- and loss-plagued major bank a liquidity injection of 50 billion francs, which initially boosted the badly battered share price. But on Friday, the CS share went to its knees again on the stock exchange. Risk premiums for CS bonds also remained at record levels, which shows that the market continued to doubt the bank's future viability. Unsettled customers apparently continued to withdraw funds on a large scale.

The driving force behind the takeover is the Swiss central bank and Finma. They feared that a "bank run" and a possible subsequent collapse of Credit Suisse could not only severely damage the Swiss financial center, but could also fuel the already tense situation in the banking industry due to the collapse of Silicon Valley Bank and thus shake the international financial system. As a major systemically important bank with total assets of CHF 531 billion and a strong presence in investment banking, CS has business ties with financial institutions around the world. At the end of last week, some of them have apparently already issued the internal slogan to reduce business with the Swiss.