UBS to buy troubled rival in deal to end crisis

ZURICH: Union Bank of Switzerland (UBS) Group AG agrees 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.

The Swiss bank is paying its rival three billion francs (US$3.3bil or RM14.8bil) in an all-share deal that includes extensive government guarantees and liquidity provisions.

The price per share marked a 99% decline from Credit Suisse’s peak in 2007.

The Swiss National Bank is offering 100 billion francs (RM484bil) liquidity assistance to UBS, while the government is granting a nine-billion-franc (RM44bil) guarantee for potential losses on assets UBS is taking over.

Regulator Finma said about 16 billion francs (RM77.4bil) of Credit Suisse bonds will become worthless to ensure private investors help shoulder the costs.

The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address client outflows and 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 market drama that threatened to send counterparties fleeing, with potential ramifications for the broader industry.

“It was indispensable that we act quickly and find a solution as quickly as possible, given that Credit Suisse is a systemically important bank,” Swiss National Bank President Thomas Jordan said at a press conference on Sunday.

The US Federal Reserve and Treasury Department welcomed the deal, as did the European Central Bank.

According to Bloomberg, US authorities have been collaborating with their Swiss counterparts because both lenders have extensive operations in the United States.

Authorities sought an agreement before markets opened again in Asia.

UBS chairman Colm Kelleher said he will shrink Credit Suisse’s investment bank, a unit that has racked up losses in recent years, likely ending the dreams of a CS First Boston spinoff.

The Swiss universal bank, the one business of Credit Suisse that has remained a relative bastion of stability, is expected to stay with UBS despite concerns about concentration in the domestic market.

“Let me be very specific on this. We intend to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” he said at a press conference announcing the deal.

He said it’s too early to say how many jobs may be cut after the deal.

The government’s loss guarantee was necessary because there was little time to do due diligence and Credit Suisse has hard-to-value assets on its books that UBS plans to wind down, Kelleher said.

If that results in losses, UBS would assume the first five billion francs (RM24bil) and the federal government the next nine billion francs (RM44bil). Any further hits would have to be borne by UBS.

The takeover of the 166-year-old lender marks a historic event for the nation and global finance.

The former Schweizerische Kreditanstalt was founded in 1856 by industrialist Alfred Escher 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.

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.

Following its recovery from a state bailout during the 2008 financial crisis, UBS established itself as one of the world’s largest wealth managers, catering to high- and ultra-high net-worth individuals worldwide.

While Credit Suisse avoided a bailout during the financial crisis, it has been hammered over the past few years by a series of blowups, scandals, leadership changes and legal issues.

Clients had pulled more than US$100bil (RM449bil) 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 four-billion-franc (RM19.4bil) capital raise.

“This was the only possible solution,” Swiss Finance Minister Karin Keller-Sutter said, adding that it was needed to stabilise Swiss, as well as international, financial markets.

Credit Suisse, she said, was no longer able to survive on its own. — Bloomberg

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