Credit Suisse has faced a tumultuous few weeks, with questions about its solvency. UBS has agreed to buy out Credit Suisse for over $2 billion. The finalized deal was reached following negotiations between UBS and Credit Suisse over the weekend.
UBS and Credit Suisse deal
UBS agreed to acquire Credit Suisse, increasing the offer to over $2bn. Swiss authorities are preparing legal changes to bypass a shareholder vote and aim to announce the finalized agreement before Monday.
UBS is expected to confirm an all-share deal with Credit Suisse as soon as Sunday evening, offering a price of around SFr0.50 per share – significantly lower than the target’s closing price of SFr1.86 on Friday. This is despite UBS raising its offer from the initially proposed SFr0.25 per share, amounting to roughly $1bn. As a result, Credit Suisse’s shareholders will be all but wiped out. Nevertheless, according to three people with direct knowledge of the situation, the deal is going ahead.
According to two people familiar with the matter, the Swiss National Bank has reportedly agreed to provide UBS with a $100 billion liquidity line as part of the deal. Furthermore, UBS has also consented to lessen its material adverse change clause, which would nullify the agreement if its credit default spreads increased substantially. It is understood that this clause is effective from the signing to the closing of the deal. Sources have revealed that there has been minimal contact between the two banks, while negotiations are believed to be primarily governed by Finma and the Swiss National Bank. The US Federal Reserve has additionally sanctioned the agreement.
Vincent Kaufmann, the CEO of Ethos Foundation representing Swiss pension funds owning 3-5% of Credit Suisse and UBS, expressed his disapproval at bypassing a shareholder vote on the proposed deal. He said: “Such measures are unprecedented and demonstrate the grave situation. I’m sure our members, as well as UBS shareholders, will not be pleased.”
The Swiss National Bank (SNB) intervened on Wednesday following Credit Suisse’s request for a SFr50bn ($54bn) emergency credit line after the bank’s share price dropped and customers began withdrawing their funds. Discussions between the lender and regulators ensued, leading the SNB to push for a merger to ensure the country’s second-largest lender remained viable.
The merger is expected to dramatically shrink Credit Suisse’s bank, forming just a third of the combined entity. According to those briefed on the process, negotiators have referred to Credit Suisse as Cedar and UBS as Ulmus. Large job losses are anticipated as part of the deal, particularly within Credit Suisse’s investment bank. Already, UBS has announced that it will reduce up to 10,000 jobs, most of which are anticipated to come from its investment banking sector. As a result, the final merged entity is expected to have significantly fewer employees than each firm had before the merger announcement.