UBS to acquire Credit Suisse, with Swiss government backing

03/20/2023 19:46 • Digital Disruptors • 90 views

According to reports, under the mediation of the Swiss government, UBS agreed to acquire rival Credit Suisse for 3 billion Swiss francs and agreed to bear losses of up to $5.4 billion. UBS said that the 22.48 shares held by its shareholders would be exchanged for one UBS share, equivalent to 0.76 Swiss francs per share, for a total consideration of 3 billion Swiss francs. The transaction is expected to be completed by the end of 2023, with annual cost savings of approximately $7 billion by 2027. The Swiss Central Bank said it would provide liquidity assistance of 100 billion Swiss francs ($108 billion) to the merged banks. The Swiss Financial Market Supervisory Authority (FINMA) stated that all business activities of the two banks would likely continue without restriction or interruption. With the support of the Swiss government, Credit Suisse’s additional Tier 1 capital bond (AT1) with a nominal value of approximately 16 billion Swiss francs ($17.2 billion) will be fully written down.

Official announcement: UBS acquires Credit Suisse for 3 billion Swiss francs

Analysis based on this information:

In a move that has caused ripples in the financial industry, UBS has agreed to acquire its rival Credit Suisse for 3 billion Swiss francs, with the Swiss government providing liquidity assistance of 100 billion Swiss francs. This acquisition is expected to be completed by the end of 2023, resulting in annual cost savings of around $7 billion by 2027.

Under the deal, UBS will exchange 22.48 shares held by its shareholders for one UBS share, equivalent to 0.76 Swiss francs per share, for a total transaction value of 3 billion Swiss francs. While this acquisition will take some time to reach completion, with a four-year window, the deal has been facilitated by the Swiss government and its financial regulators, with the Swiss Financial Market Supervisory Authority stating that all business activities of both banks would continue without restrictions or interruptions.

The announcement also detailed that UBS agreed to bear losses of up to $5.4 billion, indicating the extent of the acquisition’s scope. Credit Suisse’s additional Tier 1 capital bond (AT1) with a nominal value of around 16 billion Swiss francs will be fully written down with the support of the Swiss government, thus providing a further cushion in the event of future losses.

Furthermore, the Swiss Central Bank’s provision of liquidity assistance totaling 100 billion Swiss francs (about $108 billion) to the merged banks represents one of the most extensive commitments of financial support by any central bank to date, underscoring the critical importance of the potential combined entity.

In conclusion, the acquisition of Credit Suisse by UBS with the backing of the Swiss government represents a significant moment in the global financial landscape. This development will create a new financial entity that will likely take all-important steps to survive the significant economic challenges and come out even stronger.

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