UBS to buy Credit Suisse in $3.3bn deal to end crisis

BLOOMBERG

UBS Group AG agreed to buy Credit Suisse Group AG in a historic, government-brokered deal aimed at containing a crisis of confidence that had started to spread across global financial markets.
The Swiss bank is paying 3 billion francs ($3.2 billion) for its rival in an all-share deal that includes extensive government guarantees and liquidity provisions. The price per share marked a 99% decline from Credit Suisse’s peak in 2007.
The Swiss National Bank is offering 100 billion-franc liquidity assistance to UBS while the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over. Regulator Finma said about 16 billion francs of Credit Suisse bonds, known as AT1s, will become worthless to ensure private investors help shoulder the costs.
UBS slumped 8.8% in early Zurich trading, while Credit Suisse declined about 64%, valuing the firm at about 2.71 billion francs.
The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address client outflows and a massive rout in Credit Suisse’s stock and bonds over the past week following the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank mid-week failed to end a market drama that threatened to send counterparties fleeing, with potential ramifications for the broader industry.
The Federal Reserve and Treasury Department welcomed the deal, as did the European Central Bank. US authorities had been working with their Swiss counterparts because both lenders have extensive operations in the US, Bloomberg reported earlier. Authorities sought an agreement before markets opened again in Asia.
The transaction is expected to be completed by the end of the year if possible, Credit Suisse said in a statement.
US and European equity futures erased earlier gains on Monday to trade little changed. Asian shares slumped, with HSBC Holdings Plc plunging as much a 6.6% to lead declines by lenders. Some Asian banks’ additional tier 1 bonds fell by a record.
The Fed and five other central banks announced coordinated action to boost liquidity in US dollar swap arrangements, the latest effort by policymakers to ease growing strains in the global financial system.
UBS Chairman Colm Kelleher said he will shrink Credit Suisse’s investment bank, a unit that has racked up losses in recent years, likely ending the dreams of a CS First Boston spinoff. The Swiss universal bank, the one business of Credit Suisse that has remained a relative bastion of stability, is expected to stay with UBS, despite concerns about concentration in the
domestic market.
“Let me be very specific on this: UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” he said at a press conference announcing the deal.