The troubled Swiss bank group Credit Suisse is to be taken over by its rival UBS in a deal worth more than $3bn, (£2.65bn).
The “shotgun” deal was negotiated by bank regulation officials moving quickly to avoid further turmoil in global money markets as fears grew that financial difficulties at Credit Suisse – a bank seen as globally “systemically important” – could result in contagion which has resulted in billions wiped off the value of banks worldwide.
Karin Keller-Sutter, Switzerland’s Finance minister said the bankruptcy of a globally important bank would have created “irreparable consequences” for financial markets. The takeover plan will offer “greater stability both in Switzerland and internationally,”she said.
Calling it a “commercial solution” she said Credit Suisse’s bankruptcy “would have had huge collateral damage on the Swiss financial market and with a risk of contagion internationally. “The US and UK were very grateful for this solution . . . they really feared a bankruptcy of Credit Suisse,” she added.
Under the terms of the deal the Swiss National Bank agreed to offer up to £100bn on of liquidity to UBS to help facilitate the deal.
The Swiss government is also contributing 9bn Swiss francs to cover potential losses that UBS may suffer from taking over Credit Suisse assets from the deal if the losses exceed a threshold.
The Swiss central bank said it was forced to act after an emergency SFr50bn (£43bn) credit line it provided last week failed to stop Credit Suisse’s share price plummeting as depositors moved swiftly to move their money. The 167-year-old bank has been trying to recover from a series of scandals that have undermined the confidence of investors and clients.
The Bank of England welcomed the deal calling it a “comprehensive set of actions set out by the Swiss authorities in order to support financial stability.”
“We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation. The UK banking system is well capitalised and funded, and remains safe and sound,” the statement said.
The UK financial watchdog, the Financial Conduct Authority also said it was “minded to approve” the takeover to support financial stability as both UBS and Credit Suisse have operations in London.
“The FCA continues to engage closely with UK and international regulatory partners to monitor market developments,” its said.
After the deal was announced several central banks, including the US Fed and the Bank of England announced they were taking steps to ensure more US dollars would be available to improve liquidity in the global banking sector.
Anxiety over the safety of Credit Suisse and banks more widely had been made more acute by wider market turmoil caused by the sudden collapse earlier this month of California-based Silicon Valley Bank and the New York Signature Bank.
Both banks said last week they were opposed to joining up but the terms have been heavily influenced by Switzerland’s central bank.
Swiss authorities are poised to change the country’s laws to bypass a shareholder vote, which might have taken up to six weeks.
Current Credit Suisse shareholders will suffer a substantial financial blow ontop of witnessing the value of their shares decline a quarter of their value last week. When markets closed last week Credit Suisse was valued at about 7.4bn Swiss francs (£6.57bn).
UBS chairman Colm Kelleher said Credit Suisse was a “very fine asset we are determined to keep” but called it an “emergency rescue,” he added. Credit Suisse’s investment banking arm would be wound down he insisted.
The deal is expected to lead to thousands of job losses with over 1,000 at risk in London, where both banks have substantial offices.
The Swiss Bank Employees’ Association yesterday called for a taskforce be set up to deal with the threat to jobs. Investment firms and traders were busy all weekend as worried investors sought clarification about their deposits.
The UBS chairman said it was “too early” to say what would happen about jobs: “We need to do this in a rational way thoughtfully, when we’ve sat down and analysed what we need to do,” he said.
John Leiper, chief investment officer at Titan Asset Management, said: “It seems like a truly unique period but I don’t think we are at peak volatility yet, not by a long way.”
Mark Grant, a global strategist at Colliers Securities, said retail clients and institutions are worried about where their money is being held. “The heat is on and it does not look to be cooling down any day soon. I think this is a time when you have to be very conservative and very thoughtful, calm,” he told Bloomberg.