UBS agrees ’emergency rescue’ of Credit Suisse

Troubled bank Credit Suisse was bailed out in a government-backed deal by Swiss rival UBS.

Sunday evening’s announcement came after emergency talks between the banks and the country’s financial regulators over the weekend in Switzerland.

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

The Bank of England said it welcomed a “comprehensive course of action”.

Credit Suisse shareholders will be disvoted in the deal and will receive one UBS share for every 22.48 shares they own, valuing the bank at $3.15 billion (£2.6 billion).

At the close of business on Friday, Credit Suisse was valued at around $8 billion (£6.5 billion).

But the deal accomplished what regulators were trying to do – to secure a result before financial markets opened on Monday.

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

The federal government said it would provide $9.6bn (£7.9bn) worth of potential loss guarantees to mitigate UBS’s risk.

The Swiss Central Bank has also provided up to $110bn (£90bn) of liquidity support.

Global financial institutions immediately applauded the deal.

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

“We have been working closely with international stakeholders throughout the preparation of today’s announcement and will continue to support their implementation.”

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

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

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

“FCA continues to work closely with UK and international regulatory partners to monitor market developments,” said Watchdog.

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

“They will help restore orderly market conditions and ensure financial stability.

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

The European Central Bank president’s comments also sparked reactions in the United States.

Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell said the Swiss authorities’ announcement supports “financial stability”.

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

Credit Suisse has become the latest and most important victim of the confidence crisis, having already seen the collapse of two midsize US banks and the whiplash of another industry emergency. But this is different. In Switzerland he was the second largest bank and he was considered one of the top 30 most important banks in the world. The acquisition was therefore hastily made by the Swiss authorities.

The reasons for each failure are slightly different, but the main driver is the sharp rise in global interest rates, smashing the value of even the safe investments that banks hold some of their money in. Banks will hit the ones that are considered the weakest the hardest.

Monetary authorities in the EU, US and UK have said they support the deal, emphasizing that banks are strong and people’s savings and deposits are safe. Whether or not this Swiss rescue will calm the nerves of the financial world will depend on when financial markets open up on Monday.

Speaking in the Swiss capital Bern following the announcement on Sunday evening, UBS Chairman Colm Kelleher said Credit Suisse was “a very good asset that we are determined to keep”. .

“This acquisition is attractive to UBS shareholders, but let me be clear, as far as Credit Suisse is concerned, this is an urgent relief,” he added.

Kelleher said UBS will wind down Credit Suisse’s investment banking division.

The UBS chairman said it was “too early” to say what would happen to the job.

Weekend trading saw an emergency $54bn (£44.5bn) lifeline from the Swiss National Bank on Wednesday failing to reassure markets, as Credit Suisse shares plunged 24% and rallied in European markets. It came after prompting a wider sale.

The 167-year-old bank is in the red and has faced a series of problems in recent years, including money laundering claims.