Negotiations continued throughout the weekend, in hopes of closing the deal and avoiding panic in the markets on Monday. The white smoke finally appeared this Sunday evening: the largest bank in Switzerland, UBS, pushed by the authorities, will indeed buy out its rival Credit Suisse. The President of the Swiss Confederation confirmed this during a press conference organized at 7:30 p.m. The takeover of Credit Suisse by UBS is the best solution to “restore confidence”, declared Alain Berset. This solution “is not only decisive for Switzerland (…) but for the stability of the entire financial system” worldwide, he also assured.
The amount of the transaction is 2 billion dollars, according to the specialized press. Initially, UBS had offered half, according to the Financial Times, and doubled the bet to overcome the reluctance of Credit Suisse and one of its main shareholders. The transaction would be made only in UBS shares and would value the Credit Suisse share at a price of 50 cents, instead of the 25 initially proposed, which remains much lower than the share price on Friday at the close (1.86 francs).
From scandal to scandal for two years
The merger between these giants, which are both part of the very closed club of 30 too big to fail banks, should therefore be completed and announced in time for the opening of the Asian markets. The hope being that this may be enough to prevent widespread panic.
The banking sector has been under stress since the major central banks have raised their rates sharply in an attempt to control inflation. Many institutions have failed to prepare after years of having access to cheap money. The recent bankruptcy of Silicon Valley Bank in the United States and other regional American banks has increased investor anxiety and prompted them to sell the securities of the banks considered to be the weak links. This is the case of Credit Suisse which, for the past two years, has gone from resounding scandals to reverses.
A lifeline of 50 billion Swiss francs launched Wednesday by the Swiss central bank, after a black day on the stock market, gave only a brief respite to the bank. The regulatory authorities and the federal government have had to deal with immense pressure from Switzerland’s main economic partners to clean up the situation before it contaminates the whole world. According to the Financial Times and Blick, the bank’s customers withdrew 10 billion Swiss francs in a single day late last week.