UBS agrees to buy Credit Suisse in hopes of avoiding a collapse in global financial markets

The largest bank in Switzerland UBS he will buy his rival in difficulty Credit Suisse with important guarantees from the country’s government in an attempt to “restore confidence” after a few turbulent days on world markets.

The purchase will be for 3 billion Swiss francs (3.02 billion euros, 3.2 billion dollars) in the form of shares UBS. Credit Suisse on Friday it was worth about 9 billion francs.

“This is the best way to guarantee trust,” Swiss President Alain Berset said at a press conference on Sunday evening in Bern.

This decision “is decisive not only for Switzerland (…), but also for the stability of the entire global financial system,” said Berset, along with the presidents of the two banking giants, Colm Kelleher (UBS) and Axel Lehmann (Credit Suisse).

For her part, Finance Minister Karin Keller-Sutter said the bankruptcy Credit Suisse could cause irreparable economic damage.

“For this reason, Switzerland must take responsibility beyond its borders,” he said.

“It was the only solution” otherwise the bank would have to be nationalized “at least temporarily,” the minister added.

The merger of the two banking giants, which are part of a group of 30 banks considered key in the global financial system, was to be completed by the opening of Asian markets.

It is hoped that this announcement will be enough to prevent a general panic.

banks under stress

European Central Bank President Christine Lagarde on Sunday praised the “quick action” of the Swiss authorities, and in the US, the announcement was welcomed by the Treasury and the Central Bank.

The banking sector is struggling as major central banks have raised interest rates sharply in an attempt to control inflation.

Many institutions have failed to prepare after years of access to cheap money.

The failure of Silicon Valley Bank in the US and other regional banks increased investor anxiety and triggered a crisis in other institutions that were considered weak.

This is the case of Credit Suisse, which has been mired in various unresolved scandals for two years now, despite the efforts of its management to announce a three-year restructuring plan.

The Swiss central bank on Wednesday announced a 50 billion franc ($54 billion) bailout package after a rainy day on the stock market, but the move only gave the bank a brief reprieve.

Regulators and the federal government have acted under enormous pressure from Switzerland’s major economic partners to remedy the situation before it spreads around the world.

The bank’s customers withdrew 10 billion francs ($10 billion) in deposits in a single day late last week, according to the Financial Times and Blick.

Guarantee

UBS, which took several years to recover from the 2008 financial crisis and massive government bailouts, is starting to reap the rewards.

That is why it took a lot of effort on the part of the authorities before the bank’s management agreed to take on the role of Credit Suisse’s rescuer.

To deal with the situation, Keller-Sutter said UBS will receive a state guarantee of about 9 billion Swiss francs ($9.75 billion) that acts as insurance in case problems are discovered.

“We’re going to eliminate the risk,” the President said. UBSreferring in particular to the investment bank Credit Suisse, one of the main sources of the organization’s problems.

The central bank will also provide a liquidity loan of up to 100 billion Swiss francs ($108 billion) to UBS and Credit Suisse.

UBS will also acquire the Swiss division of Credit Suisse, one of the profitable parts of the group, which nevertheless lost 7.3 billion francs last year and still expects “substantial” losses in 2023.

This industry includes retail banking and SME lending.

On Sunday, the Swiss bankers’ union “demanded” the participation of the social partners in the discussions, given the “huge” stakes in the purchase, which could mean massive job losses.

(According to AFP)