The banks, with support of Swiss government regulators, and its central bank, worked through the weekend to consummate the deal before markets opened today. The transaction will see UBS consolidate its status as the country's largest bank.

UBS said it intends to buy Credit Suisse for a total of SFr3 billion ($3.23 billion) in an all-stock deal. The transaction had been flagged in the media after the latter bank’s woes had increasingly alarmed the Swiss financial market, and beyond.

After a weekend of negotiations, UBS said in a statement on Sunday night that the combination of its business with Switzerland’s second-largest bank will create a business with more than $5 trillion in total invested assets. The deal will “further strengthen UBS’s position as the leading Swiss-based global wealth manager with more than $3.4 trillion in invested assets on a combined basis, operating in the most attractive growth markets,” it said.

The transaction is not subject to shareholder approval. UBS has obtained pre-agreement from FINMA, Swiss National Bank, Swiss Federal Department of Finance and other core regulators on the timely approval of the transaction. The merger is expected to be consummated by the end of 2023, if possible, UBS said. 

"What is clear is that we are announcing this acquisition from a position of strength," Ralph Hamers, UBS chief executive, told analysts in a call last night.

The move also consolidates UBS’s position as the “leading universal bank in Switzerland,” it said. The combined businesses will be a leading asset manager in Europe, with invested assets of more than $1.5 trillion.

This morning, shares in UBS were down 11.75 per cent at SFr15.1 per share; however, the market recovered somehwat and the price was down 4.9 per cent around 08:00 Eastern Time.

FINMA said in a statement yesterday: "In close coordination with FINMA, the Swiss Confederation and the SNB, UBS will take over Credit Suisse in full. The extraordinary government support will trigger a complete write-down of the nominal value of all AT1 shares of Credit Suisse in the amount of around SFr16 billion, and thus an increase in core capital."

"To ensure that all obligations can continue to be met at all times throughout the transaction, further liquidity assistance will be assured. This means that the banks involved will have substantial additional liquidity available to carry out the takeover. The liquidity provided by the SNB will include a loan covered by a federal guarantee. The Swiss Confederation will also provide guarantees for potential losses of certain assets that UBS will acquire as part of the transaction, if these losses exceed a specific threshold," it added.

Reports this morning said that HSBC and StanChart shares were hit in Hong Kong trading hours because of the plan to write off risky bonds as part of UBS’s takeover of Credit Suisse shook sentiment. 

Credit Suisse statement
In its statement about the deal, Credit Suisse said: “For the purpose of a seamless integration of Credit Suisse into UBS, UBS is expected to appoint key personnel to Credit Suisse as soon as legally possible. Credit Suisse continues to operate in the ordinary course of business and implement its restructuring measures in collaboration with UBS. UBS has expressed its confidence that the employment of the staff of Credit Suisse will be continued.”

Credit Suisse’s status as a viable financial institution became increasingly under question after a string of scandals and mishaps. Last year, it announced moves to restructure its business lines, slash costs, reduce risk-weighted assets and free up capital. However, its shares remained under pressure. In the fourth quarter of 2022, clients pulled out a net SFr110 billion of assets. To add to its woes, the collapse of Silicon Valley Bank in the US a week ago sharpened investor focus on banks perceived as having problems. 

The problems of Credit Suisse, as this publication has been told during meetings with industry figures in Zurich and Geneva, have hurt Switzerland’s status as a stable financial hub. 

In its statement last night, UBS said: “The discussions were initiated jointly by the Swiss Federal Department of Finance, FINMA and the Swiss National Bank and the acquisition has their full support.”

“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure. Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses. The transaction will bring benefits to clients and create long-term sustainable value for our investors,” UBS chairman Colm Kelleher, said. 

UBS chief executive officer Ralph Hamers said: “Bringing UBS and Credit Suisse together will build on UBS’s strengths and further enhance our ability to serve our clients globally and deepen our best-in-class capabilities. The combination supports our growth ambitions in the Americas and Asia while adding scale to our business in Europe, and we look forward to welcoming our new clients and colleagues across the world in the coming weeks.”

“Please remember that, until this deal closes, Credit Suisse is still our competitor,” Hamers wrote in a memo to employees (source: Bloomberg, March 20). “We cannot discuss business matters with their employees or take any action that could be interpreted as a step toward the merging of business,” he said.

That UBS is buying Credit Suisse has its own ironies. A decade ago, UBS was itself mired in trouble and had to be bailed out – albeit temporarily – by the Swiss government. It was also embroiled more than a decade ago in a legal wrangle with US authorities about providing offshore accounts to wealthy US citizens. 

Details
Under the terms of the all-share transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to SFr0.76/share for a total consideration of SFr3 billion. UBS said it will get SFr25 billion of downside protection from the transaction to support markets, purchase price adjustments and restructuring costs, and additional 50 per cent downside protection on non-core assets. 

“Both banks have unrestricted access to the Swiss National Bank existing facilities, through which they can obtain liquidity from the SNB in accordance with the guidelines on monetary policy instruments,” UBS said. 

The combination of the two businesses is expected to generate an annual run-rate of cost reductions of more than $8 billion by 2027.

UBS Investment Bank will reinforce its global competitive position with institutional, corporate and wealth management clients through the acceleration of strategic goals in global banking while managing down the rest of Credit Suisse’s investment bank. The combined investment banking businesses accounts for approximately 25 per cent of group risk weighted assets.

UBS said it expects the deal will be accretive to earnings per share by 2027 and the bank remains capitalized well above its target of 13 per cent.

Colm Kelleher will be chairman and Ralph Hamers will be group CEO of the combined entity.

Axel P Lehmann, chairman of the board of directors of Credit Suisse said: “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome. This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome.”

(Editor's note: In coming days, we will try and explore questions such as how many Credit Suisse staff may be shed as a result of the likely duplication of roles in such a merger; how the planned restructuring of Credit Suisse that was announced last year will go ahead, including the winding-down of the investment bank, and whether any of the old Credit Suisse brand will remain in the domestic market, if at all. The pain of any job reductions will be felt around the world. Credit Suisse had made the Asia-Pacific region, for example, a big part of its strategy in wealth management. A question is how much of that can UBS retain, and how many clients might decide to start afresh by going elsewhere, such as to external asset managers or other private banks. 

For years, the refrain had been that big consolidation in Swiss private banking was coming, and while there were a few mergers in the smaller end of the spectrum, the "big deal" never quite came to pass. And now, it seems, against a background of financial pain and increasing worry, a "shotgun marriage" of sorts has happened. Credit Suisse's fall from grace – a bank with a 167-year pedigree – has been dramatic. Beyond the usual comments about crises and contagion, however, is the fact that capitalism at its best requires that capital be deployed where it can achieve the strongest returns. When you have a bank under as much pressure as Credit Suisse has been, the situation has to be resolved. 

As always, the editorial team at this news service wishes to cover this major story thoroughly and constructively, gain all sides of opinion, and is keen to hear from those who want to keep us informed. Please email tom.burroughes@wealthbriefing.com)