UBS secures £2.7bn Credit Suisse rescue

Economy
By Liam

UBS takes over Credit Suisse in £2.7bn bailout deal as financial regulators scramble to contain worst banking crisis since 2008

  • Shotgun marriage of Swiss banks announced in government-backed deal
  • Swiss central bank said ‘solution found to secure financial stability’
  • UBS was due to make an offer worth just under £820 million, but it was turned down

By Leah Montebello for The Daily Mail

published: | Updated:

UBS has taken over Credit Suisse in a £2.7bn bailout as financial regulators scramble to contain the biggest banking crisis since 2008.

The shotgun wedding of Switzerland’s two largest banks was announced late yesterday in a government-backed deal.

In a statement, the Swiss central bank said that “a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation.”

UBS was due to make a full share offer worth just under £820 million yesterday morning, but this was rejected by Credit Suisse’s board of directors.

Although the upgraded deal is worth £2.7bn, including a liquidity relief loan of up to £88bn, Credit Suisse is still valued well below the bank’s closing price on Friday, virtually wiping out the beleaguered bank’s shareholders.

The talks were orchestrated by the Swiss National Bank and regulator Finma, with support from the Bank of England. Credit Suisse is one of 30 banks deemed too big to fail by the industry. The peg comes after Credit Suisse shares had their worst week since the start of the pandemic.

The sector has been shaken by the bankruptcy of Silicon Valley Bank (SVB) in the US this month and declining market confidence. Last week alone, more than £400bn was wiped from the value of bank shares globally.

Zurich-based Credit Suisse has been in talks with UBS and regulators since it secured an emergency loan of up to £45bn from Swiss authorities last week.

UBS shareholders normally have six weeks to consider a deal on this scale. Vincent Kaufmann, CEO of Ethos Foundation, which represents Swiss pension funds that own between 3 and 5 percent of Credit Suisse and UBS, told the Financial Times: “I can’t believe our members and UBS shareholders will be happy. I have never seen such measures; it shows how bad the situation is.’

The Saudi National Bank and the Qatar Investment Authority are the two largest shareholders, together holding 17 percent of the shares.

The rescue puts an end to years of unrest at the 167-year-old bank. It cost £8 billion in 2021 after the collapse of Greensill Capital and lost £4.5 billion when US investment fund Archegos went under.

It became the first Swiss company to be found guilty of a corporate crime after it laundered money for a Bulgarian drug cartel.

Former Lloyds Bank boss Antonio Horta-Osorio was forced to leave as chairman last year after breaking Covid quarantine rules to watch major football and tennis finals on the same day.

Deal won’t stop the ‘whack a mole’ jitters in the markets

Bank stocks are heading into another week of turmoil, despite the Credit Suisse bailout preventing a bigger crisis.

“This deal will bring some stability back to the banking sector,” said Hargreaves Lansdown analyst Susannah Streeter. Investors will be relieved that the authorities are willing to do whatever it takes to bring about stability.

But concerns about the health of the sector – fueled by the collapse of US-based lenders Silicon Valley Bank, Silvergate and Signature Bank – remain. Streeter warned that “a game of whack a mole” is emerging — with one crisis being averted and another popping up elsewhere.

There is also fear surrounding US banks after the £25 billion injection into San Francisco-based First Republic failed to ease the jitters. Shares fell nearly a fifth despite 11 Wall Street firms collaborating on the financing deal

Streeter said, “There will be nervousness this week. Other banks may be sitting on large unrealized bond losses, and will keep that in mind.”

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