UBS Group AG agreed to buy Credit Suisse Group AG in a historic, government-brokered deal aimed at containing a crisis of confidence that threatens to spread throughout the world’s financial markets.
The Swiss bank paid more than $2 billion for its rival, according to people with knowledge of the matter. It is an all share deal and is priced at a fraction of Credit Suisse’s close on Friday, when the bank was valued at about 7.4 billion francs ($8 billion.) The people asked not to be identified because the deal is not yet public. .
The Swiss National Bank agreed to offer a $100 billion liquidity line to UBS as part of the deal, according to the Financial Times, which first reported the deal. Swiss authorities are ready to change the country’s laws to bypass a shareholder vote, the newspaper reported, citing people close to the matter.
Representatives of both banks declined to comment.
The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address a big loss in Credit Suisse’s stock and bonds last week after the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank in the middle of the week failed to end a market drama that threatened to send clients or counterparties fleeing, with potential consequences for the wider industry.
US authorities are working with their Swiss counterparts because both lenders have operations in the US and are considered systemically important in Switzerland, Bloomberg reported earlier. Authorities are seeking a deal before Asian markets reopen.
UBS earlier made an offer of about $1 billion, or 0.25 francs a share, for Credit Suisse, which the company turned down, people with knowledge of the matter said on Sunday.
UBS has agreed to soften a material adverse change clause that could void the deal if credit default spreads jump, the FT also reported people familiar with the matter as saying. The material adverse change clause applies for the period between signing and closing the deal, the people said.
The takeover of the 166-year-old lender marks a historic event for the country and global finance. The former Schweizerische Kreditanstalt was founded by industrialist Alfred Escher in 1856 to finance the construction of a railway network in the mountains. It became a global powerhouse that symbolized Switzerland’s role as a global financial center, before struggling to adapt to a changed banking landscape after the financial crisis.
UBS traces its roots back to some 370 separate institutions over 160 years, leading to the merger of the Union Bank of Switzerland and the Swiss Bank Corporation in 1998. After emerging from a state bailout during the 2008 financial crisis, UBS has built a reputation as one of the world’s largest wealth managers, serving the high and very high net worth around the world.
While Credit Suisse avoided a bailout during the financial crisis, it has been hammered in recent years by a series of explosions, scandals, leadership changes and legal issues. Clients pulled more than $100 billion in assets in the last three months of last year as concerns grew about its financial health, and the outflows continued even after it tapped shareholders for a 4 billion franc capital increase.
–With help from Myriam Balezou.