Switzerland's largest bank, UBS agreed on Sunday (19 March) to acquire its beleaguered rival Credit Suisse for $3.24 billion after an intervention by Swiss authorities in a bid to arrest financial panic that has swept the globe in the last week.
Under the terms of the merger agreement, all shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse. The exchange ratio reflects a merger consideration of 3 billion Swiss franc (~$3.24 billion) for all shares in Credit Suisse.
The move comes after the Swiss Federal Department of Finance, the Swiss National Bank, and the Swiss Financial Market Supervisory Authority FINMA on 19 March asked both companies to conclude the transaction to restore confidence in the stability of the Swiss economy and banking system.
The deal caps a highly volatile week for Credit Suisse, most notably on Wednesday when its shares plunged to a record low after its largest investor, the Saudi National Bank, said it wouldn't invest any more money into the bank to avoid tripping regulations that would kick in if its stake rose about 10 per cent.
The continuous decline in shares of Credit Suisse raised the worries over the Swiss lenders' collapse, following which the Swiss government had to intervene with a $54 billion lifeline and now the merger.
"Pursuant to the emergency ordinance which is being issued by the Swiss Federal Council, the merger can be implemented without approval of the shareholders," Credit Suisse said in a statement.
The merger transaction remains subject to customary closing conditions, and is expected to be consummated by the end of 2023.
The Swiss National Bank will grant Credit Suisse access to facilities that provide substantial additional liquidity.
UBS is also expected to appoint key personnel to Credit Suisse as soon as legally possible to ensure a seamless integration of Credit Suisse into UBS.
In a statement, UBS said that the combination is expected to create a business with more than $5 trillion in total invested assets and sustainable value opportunities. It will further strengthen UBS’s position as the leading Swiss-based global wealth manager with more than $3.4 trillion in invested assets on a combined basis, operating in the most attractive growth markets.
UBS Chairman Colm Kelleher said: “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. 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”.
Credit Suisse will continue to operate in the ordinary course of business and implement its restructuring measures in collaboration with UBS.
Axel P Lehmann, Chairman of the Board of Directors of Credit Suisse, said: “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome. 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.”
On Sunday, Credit Suisse was informed by FINMA that its Additional Tier 1 Capital, deriving from the issuance of Tier 1 Capital Notes, in the aggregate nominal amount of approximately 16 billion Swiss francs (~$17.28 billion) will be written off to zero.
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