‘Let’s be clear. This is an emergency rescue’: UBS

As the US banking system continues to experience stress across the system, UBS announced on Monday (20 March) that it will pay 3 billion Swiss francs ($4.5 billion) for embattled lender Credit Suisse, less than half of what the company was trading at on Friday (17 March).

The deal is expected to create a business with more than US$5 trillion ($7.4 trillion) in total invested assets. 

The discussions were initiated jointly by the Swiss Federal Department of Finance, FINMA, and the Swiss National Bank and come after Credit Suisse borrowed $80 billion to shore up its defences.

“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” UBS chairman Colm Kelleher said.

“We have structured a transaction which will preserve the value left in the business while limiting our downside exposure. Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses. The transaction will bring benefits to clients and create long-term sustainable value for our investors.”

UBS chief executive Ralph Hamers said combining UBS and Credit Suisse supports the group’s growth ambitions in the Americas and Asia while adding scale to its business in Europe.

“We look forward to welcoming our new clients and colleagues across the world in the coming weeks,” he said.

Mr Kelleher will be chairman and Mr Hamers will be group CEO of the combined entity.

Under the terms of the all-share transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held. UBS benefits from 25 billion Swiss francs of downside protection from the transaction to support marks, purchase price adjustments and restructuring costs, and additional 50 per cent downside protection on non-core assets.

Both banks have unrestricted access to the Swiss National Bank’s existing facilities, through which they can obtain liquidity from the SNB in accordance with the guidelines on monetary policy instruments.

The transaction is not subject to shareholder approval. UBS has obtained pre-agreement from FINMA, Swiss National Bank, Swiss Federal Department of Finance, and other core regulators on the timely approval of the transaction.

“Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome,” said Credit Suisse chairman Axel Lehmann.

“This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome.”

 [Related: Credit Suisse borrows $80bn from central bank]