UBS to buy Credit Suisse amid collapse of US banks

Banking giant UBS has agreed to buy Credit Suisse, a smaller competitor, Swiss authorities said on Sunday. The historic deal comes as major financial institutions continue to grapple with the aftermath of the sudden collapse of Silicon Valley Bank earlier this month and work to avert a wider crisis.

“This takeover was made possible with the support of the Swiss Federal Government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank,” the Swiss National Bank said in a statement. “With the takeover of Credit Suisse by UBS, a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation.”

At a press conference held on Sunday afternoon to discuss the emergency purchase, Karin Keller-Sutter, President of FINMA, said “Switzerland must take responsibility beyond its borders” and added that the deal was reached in an attempt to avoid ” irreparable economic damage. riots in Switzerland and around the world.” Keller-Sutter said the purchase “laid the foundation for greater stability both in Switzerland and internationally.”

Concerns about the stability of the global banking system have spread across the US and Europe after the failures of Silicon Valley Bank and Signature Bankthat occurred less than two weeks ago and a few days apart. Their closure prompted rare moves by the federal government, as well as some of the largest US banks, to bolster finances at institutions that have been threatened by the unrest.

Credit Suisse received nearly $54 billion last week from the Swiss National Bank as part of those negotiations, while a consortium of 11 major US banks including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo agreed to provide $30 billion in financing for First Republic Bank. These four banks each agreed to contribute $5 billion, while Goldman Sachs and Morgan Stanley each agreed to contribute $2.5 billion, and BNY Mellon, PNC Bank, State Street, Truist, and US Bank each agreed to contribute $1 billion. .

Promises of emergency funding on Thursday briefly interrupted the ongoing decline in shares of both banks, which resumed the next day. On Friday, Credit Suisse’s share price fell 7% to end the day at $2.01.

Shares of Credit Suisse, Switzerland’s second largest commercial bank, fell 30% on the SIX stock exchange after its largest shareholder announced the news. would not put more money to the institution. The bank ran into trouble before US bank failures sparked fear and distrust among major investors, and on Thursday it announced plans to borrow up to 50 billion francs from the national bank.

“This additional liquidity will support Credit Suisse’s core business and customers as Credit Suisse takes the necessary steps to build a simpler, more focused, customer-focused bank,” Credit Suisse said in a statement at the time.

The sharp drop in the price of its shares a day earlier hit a record low for Credit Suisse after the National Bank of Saudi Arabia told news outlets it would not invest more in the institution as it seeks to avoid regulation that would become applicable to the stake in Swiss lender above 10%. The shock triggered an automatic freeze in Swiss stock trading for Credit Suisse and had a significant impact on stocks in other major European banks, with some stock prices falling by double digits.

Despite the actions of the Swiss National Bank to strengthen the finances in Credit Suisse, analysts at Capital Economics said concerns about the institution’s health remained, especially given that it had not been profitable in two years.

Andrew Cenningham, chief economist for Europe at Capital Economics, said in a note to investors Friday that while Credit Suisse has a three-year business recovery plan, “it’s not clear if the markets will last that long.”