O UBS closed the purchase of the rival Credit Suisse for US$ 3.2 billion, an amount three times the initial offer. The operation was confirmed this Sunday (19) by the Swiss National Bank (SNB), which actively participated in the negotiations.
Under the terms of the agreement, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, which is equivalent to CHF 0.76 per share, for a total of CHF 3 billion (US$3. 2 billion).
In addition, the SNB agreed to offer a CHF 100 billion liquidity facility to UBS as part of the deal.
“With the acquisition of Credit Suisse by UBS, a solution has been found to guarantee financial stability and protect the Swiss economy in this exceptional situation,” the monetary authority said in a statement.
UBS, on the other hand, informed that with the purchase of Credit Suisse it will have more than US$ 5 trillion in invested assets. “This acquisition is attractive for UBS shareholders, but let’s be clear, as far as Credit Suisse is concerned, this is an emergency bailout,” said UBS chairman Colm Kelleher.
How big is Credit Suisse’s problem?
Credit Suisse’s problems didn’t come out of nowhere. The Swiss bank, together with the Deutsche Bank and some Italian banks, carries risks since the end of the last global financial crisis, which hit Europe hardest between 2011 and 2012.
The bank’s swollen structure, based on assets of low liquidity, would put Credit Suisse in a delicate situation in case of any bank run. A series of rumors about the bank’s financial health, disseminated over the past year, provided the exact conditions for this to happen.
“A rumor is all it takes to break a bank”, comments William Castro Alves, Avenue’s chief strategist. In 2022 alone, Credit Suisse shares traded in New York plunged 30%; in 5 years, this drop is 80%. Today the institution has a market value of US$ 10 billion.
To try to contain the bloodletting surrounding the withdrawal of resources, the executive board rushed to the market in search of a capitalization, promising a restructuring plan and greater rigidity in the rules of compliance.
And it did. With help from the SNB, Credit raised $4.2 billion, helping to allay market concerns. But any tranquility came crashing down with the ‘twin’ collapse of the SVB and the Signature last weekend, ultimately generated by issues similar to those facing the Swiss.
“If the bank does not reverse the outflows of resources, and does not restore the amount of assets under management, the adverse effect could lead to a more extreme situation”, assesses Avenue’s chief strategist. Castro Alves also points out that the bank’s liquidity remains close to or even below levels established by regulators.
With Reuters and Jorge Fofano
I am an author and journalist with a focus on market news. I have worked for a global news website for the past two years, writing articles on a range of topics relating to the stock market. My work has been published in international publications and I have delivered talks at both academic institutions and business conferences around the world.