Andrew Ross Sorkin, Michael J. de la Merced and
Andrew Ross Sorkin, Michael de la Merced and Maureen Farrell cover global finance from New York and London.
UBS has agreed to buy Credit Suisse, its beleaguered rival, the Swiss government said on Sunday, in a hastily arranged deal meant to shore up the global financial sector after a week of turmoil.
Swiss government leaders and regulators said that the deal was the most effective way of reassuring investors after Credit Suisse’s shares tumbled following the implosion of Silicon Valley Bank earlier this month.
To help support UBS, the Swiss National Bank agreed to lend up to 100 billion Swiss francs, or $108.8 billion. And Finma, the Swiss financial regulator, said it would temporarily suspend some regulations to help UBS digest its chief competitor.
The takeover of Credit Suisse is the most consequential fallout to date from the turmoil that spread from the implosion of Silicon Valley Bank earlier this month. But Credit Suisse’s troubles were largely of its own making, tied to years of scandals and financial missteps that have cost it billions of dollars in trading losses and legal fines.
Not even a $54 billion lifeline from the Swiss National Bank, announced last week, was able to stem the erosion of investor confidence that sank Credit Suisse’s shares to record lows. Talks between Credit Suisse and the far stronger UBS intensified over the past week, as Swiss banking authorities sought to avoid a chaotic dissolution of Credit Suisse.
UBS is expected to pay just a fraction of the roughly 8.8 billion Swiss francs, or $9.5 billion, that Credit Suisse was valued at on Friday, these people said. They cautioned that the terms are still being negotiated last minute and talks may still fall apart.
The move represents the unwinding of a 166-year-old institution created to finance Switzerland’s rail network that ascended to the top echelons of finance, at times standing toe-to-toe with American titans like JPMorgan Chase. But Credit Suisse was tarred by scandals over the years — from money laundering to wrong-way trading bets — that left it reeling from losses and damaged its reputation.
The bank had been struggling to turn itself around in recent months, but two events last week contributed to Credit Suisse’s fall. First, the bank disclosed on Tuesday that there were “material weaknesses” in its financial reporting. And second, it was swept up in the broad and intensifying panic around the health of banks: As shares in lenders around the world tumbled following the collapse of Silicon Valley Bank and Signature Bank, markets grew especially wary of Credit Suisse.
Prices for Credit Suisse shares and bonds dropped sharply all week, as did the cost of insuring its debt against default, despite efforts by Swiss regulators to shore up investor confidence. On Thursday, Credit Suisse said it would tap a $54 billion lifeline from the Swiss central bank in hopes of staving off a disaster.