UBS Bank to buy Credit Suisse, announces Swiss President

Europe 1 with AFP 21:09 p.m., March 19, 2023

After intense negotiations, the largest Swiss banking group UBS will buy its rival in difficulty Credit Suisse, said Sunday the president of the Swiss Confederation Alain Berset, believing that it was the best way to "restore confidence". This solution "is not only decisive for Switzerland (...) but for the stability of the entire global financial system," said Alain Berset at a press briefing in the presence of the presidents of the two banking giants, Colm Kelleher for UBS and Axel Lehmann for Credit Suisse. Finance Minister Karin Keller-Sutter said at the press conference that the bankruptcy of Credit Suisse could have caused "irreparable economic damage". "For this reason, Switzerland must assume its responsibilities beyond its own borders."

Race to the abyss

The transaction amounts to 3 billion Swiss francs (3.02 billion euros) payable in UBS shares, or only 76 cents for a Credit Suisse share that was still worth 1.86 Swiss francs on Friday evening. The merger between these giants, which are both part of the very exclusive club of 30 banks too big to fail, had to be completed and announced in time for the opening of Asian markets. The hope being that this may be enough to prevent widespread panic.

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The banking sector has been under pressure since major central banks sharply raised rates in an attempt to keep inflation under control. Many institutions have failed to prepare after years of accessing cheap money. The recent collapse of Silicon Valley Bank in the United States and other regional American banks has increased investor anxiety and pushed them to sell the securities of banks considered to be the weak links.

This is the case of Credit Suisse, which for the past 2 years has gone from resounding scandals to reverses. And despite its management's efforts to tout a three-year restructuring plan, nothing has helped. Investors voted with their feet and the Zurich-based bank struggled to access liquidity at reasonable prices. A 50 billion Swiss franc lifeline launched Wednesday by the Swiss Central Bank, after a black day on the stock market, gave the bank only a brief respite.

A guarantee of CHF 9 billion

The regulatory authorities and the federal government have had to face immense pressure from Switzerland's main economic partners to clean up the situation before it infects 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.

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UBS will benefit from a guarantee of some CHF 9 billion from the government that serves as insurance should problems be discovered in very specific Credit Suisse portfolios, Keller-Sutter said. The central bank is also providing a liquidity line of up to CHF 100 billion to UBS and Credit Suisse UBS, which spent several years recovering from the shock of the 2008 financial crisis and a massive state bailout, is beginning to reap the benefits of its efforts and it took a lot of pressure from the authorities for the bank's management to accept the savior's mant.

"Substantial" losses in 2023

The Competition Commission could also raise eyebrows depending on the configuration of the takeover. The discussions also focused on the fate of the Swiss branch of Credit Suisse, one of the profitable parts of the group that lost 7.3 billion Swiss francs last year and still expects "substantial" losses in 2023.

This branch brings together retail banking and SME loans. One of the avenues considered by analysts is that of an IPO, which could limit layoffs in Switzerland due to duplication with UBS's activities. On Sunday, the union of bank employees in Switzerland "demanded" the participation of the social partners in the discussions, given the "enormous" stakes for employment.