UBS to Buy Credit Suisse in Historic Deal to End Crisis

(Bloomberg) — UBS Group AG agreed to buy Credit Suisse Group AG in a historic, government-brokered deal aimed at containing a crisis of confidence that had started to spread across global financial markets.

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The Swiss bank is paying more than $2 billion for its rival, according to people with knowledge of the matter. It will be an all-share deal and priced at a fraction of Credit Suisse’s close on Friday, when the bank was valued at about 7.4 billion francs ($8 billion). Swiss officials and chairmen of the two banks announced the deal in a press conference late Sunday.

The Swiss National Bank is offering a $100 billion liquidity line to UBS while the government is granting a 9 billion-franc guarantee to assume potential losses from assets UBS is taking over. Regulator Finma said the moves “will trigger a complete write-down of the nominal value of all AT1 shares of Credit Suisse” amounting to 16 billion francs.

The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address a massive rout in Credit Suisse’s stock and bonds over the past week following the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank mid-week failed to end a market drama that threatened to send clients or counterparties fleeing, with potential ramifications for the broader industry.

“It was indispensable that we acted quickly and find a solution as quickly as possible,” Swiss National Bank President Thomas Jordan said at the press conference.

US authorities have been working with their Swiss counterparts because both lenders have operations in the US and are considered systemically important in Switzerland, Bloomberg reported earlier. Authorities sought an agreement before markets opened again in Asia.

UBS had earlier tabled an offer of about $1 billion, or 0.25 francs a share for Credit Suisse, which the firm had pushed back on, people with knowledge of the matter said earlier on Sunday.

UBS agreed to a softening of a material adverse change clause that would void the deal if its credit default spreads jump, the FT also reported people familiar with the matter as saying. The material adverse change clause applies for the period between the signing and closing of the deal, the people said.

The takeover of the 166 year-old lender marks a historic event for the nation and global finance. The former Schweizerische Kreditanstalt was founded by industrialist Alfred Escher in 1856 to finance the build-out of the mountainous nation’s railway network. It had grown into global powerhouse symbolizing Switzerland’s role as a global financial center, before struggling to adapt to a changed banking landscape after the financial crisis.

UBS traces its roots back through some 370 separate institutions over 160 years, culminating in the merger of the Union Bank of Switzerland and the Swiss Bank Corporation in 1998. After emerging from a state bailout during the 2008 financial crisis, UBS built a reputation as one of the world’s largest wealth managers, catering to high- and ultra-high net worth individuals globally.

While Credit Suisse avoided a bailout during the financial crisis, it has been hammered over recent years by a series of blowups, scandals, leadership changes and legal issues. Clients had pulled more than $100 billion of assets in the last three months of last year as concerns mounted about its financial health, and the outflows continued even after it tapped shareholders in a 4 billion-franc capital raise.

–With assistance from Myriam Balezou.

(Updates with government guarantee, AT1 writedown in third paragraph.)