The embattled Credit Suisse will be rescued by UBS, the largest bank in the world, in a deal backed by Swiss Authorities to prevent potentially global financial issues. Source: epSos.de/Wikimedia Commons
Switzerland’s authorities have reported that Multinational investment bank UBS will buy the Credit Suisse for $3 billion francs ($4.8 billion) in an attempt to save the embattled lender and stem contagion to the broader financial system.
The takeover is expected to be finalised by the end of 2023.
Included in the deal is $100 billion francs ($160 billion) in liquidity assistance provided by the Swiss central bank after Swiss regulators were forced to step in to ensure the deal would go through.
“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,” said the Swiss central bank.
Authorities had been desperate to rescue Credit Suisse before global trade opened today. Swiss President Alain Berset said the takeover was the best way to provide confidence in the Swiss financial centre.
“An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system,” Mr Berset said.
To ensure the deal, the Swiss federal government has said it will provide a loss guarantee up to 9 billion Swiss francs for a clearly defined part of the portfolio. This will be activated if losses are incurred on this portfolio, in which UBS would assume the first $5 billion francs, the Swiss government the next $9 billion francs, with UBS assuming any losses beyond that.
Swiss regulator FINMA, stated that it had approved the takeover as the recent measures to stabilise Credit Suisse were “not enough to restore confidence in the bank, however, and more far-reaching options were also examined”.
Both banks are part of a group of the 30 global systemically important banks which are closely monitored by regulators, and Credit Suisse’s failure would ripple throughout the world’s financial system.
The success of the two banks changed drastically in the past year, with UBS earning US$7.6 billion ($11.3 billion), while Credit Suisse had a loss of US$7.9 billion ($11.7 billion).
“The transaction reinforces UBS’s position as the leading universal bank in Switzerland,” UBS said regarding their takeover of Credit Suisse.
However, one source cautioned that 10,000 jobs may have to be cut during the course of the takeover.
