Credit Suisse to be rescued by UBS in an emergency

Troubled bank Credit Suisse has been rescued by its Swiss rival UBS in a government-backed deal Sunday’s announcement came after a weekend of emergency talks in Switzerland between the two banks and the country’s financial regulators.

The Swiss National Bank said the deal was the most effective way to restore confidence in financial markets and to manage risks to the economy.

Credit Suisse said it was not expecting “any disruption to client services”.

“We are fully focused on ensuring a smooth transition and seamless experience for our valued clients and customers,” a spokesperson for the bank told BBC.

Credit Suisse shareholders were deprived of a vote on the deal and will receive one share in UBS for every 22.48 shares they own, valuing the bank at $3.15bn (£2.6bn).

At the close of business on Friday Credit Suisse was valued at around $8bn.

But the deal has achieved what regulators set out to do – secure a result before the financial markets open on Monday.

The merger comes amid fears over the global banking system, with Credit Suisse being the latest casualty of a crisis of confidence that has seen two mid-sized US banks fail and another propped up by emergency funding.

In a statement, Switzerland’s central bank said “a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation”.

The federal government said in order to reduce any risks for UBS it would grant a guarantee against potential losses worth $9.6bn.

The Swiss central bank has also offered liquidity assistance of up to $110bn.

Global financial institutions were quick to praise the deal.

The Bank of England said it welcomed the “comprehensive set of actions” set out by the Swiss authorities.

“We have been engaging closely with our international counterparts throughout the preparations for today’s announcements and will continue to support their implementation.”

It said the UK banking system was “well capitalized and funded, and remains safe and sound”.

Central banks to boost the flow of US dollars

The UK Treasury also said it welcomed the merger and the British government would continue to engage with the Financial Conduct Authority (FCA) and the Bank of England “as is usual”.

The FCA said on Sunday it was “minded to approve” the takeover to support financial stability as both UBS and Credit Suisse have operations in London.

“The FCA continues to engage closely with UK and international regulatory partners to monitor market developments,” the watchdog said.

Christine Lagarde, President of the European Central Bank, said she welcomed the “swift action” of the Swiss authorities.

“They are instrumental in restoring orderly market conditions and ensuring financial stability.

“The euro area banking sector is resilient, with strong capital and liquidity positions,” Ms Lagarde said.

The comments from the European Central Bank President were echoed in the US.

Treasury Secretary Janet Yellen and Federal Reserve Board chairman Jerome Powell both said the announcement by the Swiss authorities supported “financial stability”.

“The capital and liquidity positions of the US banking system are strong, and the US financial system is resilient”, they said.

Another mid-sized US bank has already failed and an emergency industry whip-round has resulted in the failure of Credit Suisse. It’s different here, though. In order to expedite this takeover, Swiss authorities rushed through the purchase of Switzerland’s second biggest lender.

Although the reasons for each failure vary somewhat, an increase in global interest rates has led to a sharp drop in the value of even safe investments that banks hold. Consequently, all banks’ share prices have fallen, with the weakest banks being the hardest hit.

The EU, US, and UK financial authorities say they support this deal, stressing the strength of banks and the safety of people’s savings and deposits. It was vital to get this done on Sunday night so we would know if this Swiss rescue has calmed nerves in the financial world on Monday.

According to UBS chairman Colm Kelleher, the Swiss bank is determined to retain Credit Suisse following Sunday’s announcement.

Credit Suisse is seeking an emergency rescue with this acquisition, but UBS shareholders will find it attractive.

Credit Suisse’s investment banking division would be run down by UBS, Mr Kelleher said.

In regards to jobs, UBS chairman said it was “too early” to speak: “We’ll need to do things rationally, after we’ve sat down and done our due diligence.”.

As a result of Credit Suisse’s 24% slide on Wednesday, a $54bn rescue package provided by the Swiss National Bank failed to reassure markets.

A string of problems, including money laundering charges, have plagued the 167-year-old bank in recent years.