20th March 2023 – (Zurich) Swiss banking giant Credit Suisse Group AG has agreed to a historic, government-brokered deal with UBS AG aimed at containing a crisis of confidence that has been threatening to spread across global financial markets. UBS has agreed to acquire Credit Suisse for 3 billion Swiss francs, which is equivalent to US$3.25 billion. This price is approximately 60% lower than the value of Credit Suisse when markets closed on Friday. Consequently, shareholders of Credit Suisse will experience a significant loss as they will receive only 0.76 Swiss francs in UBS shares for each stock they held on Friday, which had a value of 1.86 Swiss francs.
The deal was negotiated in hastily arranged crisis talks over the weekend and seeks to address a massive rout in Credit Suisse’s stock and bonds over the past week following the collapse of smaller U.S. lenders. The liquidity backstop by the Swiss central bank failed to end a market drama that threatened to send clients or counterparties fleeing, with potential ramifications for the broader industry. U.S. authorities have been working with their Swiss counterparts because both lenders have operations in the U.S. and are considered systemically important in Switzerland.
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 a global powerhouse symbolising Switzerland’s role as a global financial centre,, before struggling to adapt to a changed banking landscape after the financial crisis.
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 US$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.
Banks continued plummeting on Friday. In Europe, Credit Suisse sank 8.01%. Over in the U.S., First Republic plunged 32.80% — and a further 15.37% in after-hours trading. Other regional banks were down too. PacWest lost 18.95% and Western Alliance Bancorp sank 15.14%. US and European markets sank amid the bank tumult. All major US indexes fell on Friday and the pan-European Stoxx 600 index lost 1.26%, giving it a 3.9% loss for the week — its worst of the year.