Credit Suisse: UBS pays $2 billion to buy weakened bank

Negotiations continued throughout the weekend in hopes of closing the deal and avoiding panic in the markets on Monday. White smoke finally appeared this Sunday evening: UBS, the largest bank in Switzerland, pushed by the authorities, will indeed buy out its rival Credit Suisse. The President of the Swiss Confederation confirmed this during a press conference organized at 19:30. The takeover of Credit Suisse by UBS is the best solution to “restore confidence,” said Alain Berset. He also assured that this decision “is decisive not only for Switzerland (…), but also for the stability of the entire financial system” around the world.

The amount of the deal is $2 billion, according to the specialized press. Initially, UBS offered half, according to the Financial Times, and doubled down to overcome the reluctance of Credit Suisse and one of its major shareholders. The deal will be in UBS shares only and Credit Suisse shares will be priced at 50 cents instead of the originally offered 25 cents, which remains well below Friday’s close price of 1.86 francs.

From scandal to scandal in two years

Thus, the merger between these giants, which are part of a very closed club of 30 banks too big to fail, should be completed and announced by the opening of the Asian markets. It is hoped that this may be enough to prevent mass panic.

The banking sector is under stress as major central banks have raised their rates sharply in an attempt to control inflation. Many institutions have failed to prepare after years of access to cheap money. The recent failure of Silicon Valley Bank in the US and other regional US banks has increased investor anxiety and prompted them to sell securities of banks considered weak links. This is the case of Credit Suisse, which has gone from high-profile scandals to failure over the past two years.

A 50 billion Swiss franc lifeline launched Wednesday by the Swiss central bank after a black day on the stock market gave the bank only a brief reprieve. Regulators and the federal government have had to face enormous pressure from Switzerland’s main economic partners to fix the situation before it infects the whole world. According to the Financial Times and Blick, the bank’s clients withdrew 10 billion Swiss francs in a single day at the end of last week.