Banking giant UBS has agreed to buy Credit Suisse, a smaller rival, Swiss authorities announced on Sunday. The landmark deal comes as major financial institutions continue to grapple with the fallout from the sudden collapse of Silicon Valley Bank earlier this month and work to avert a wider crisis.
“This takeover was made possible with the support of the Swiss Federal Government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank,” the Swiss National Bank said in a statement. statement. “With the takeover of Credit Suisse by UBS, a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation.”
At a press conference on Sunday afternoon to discuss the emergency purchase, Karin Keller-Sutter, president of FINMA, said that “Switzerland must take responsibility beyond its borders” and added that a deal had been reached in an attempt to avoid “irreparable economic turmoil in Switzerland and around the world.” Keller-Sutter said the purchase “laid the foundations for greater stability both in Switzerland and internationally.”
Concerns about the stability of the global banking system have spread to the United States and Europe resulting from the bankruptcy of Silicon Valley Bank and Signature Bank, which happened less than two weeks ago and a few days apart. Their closures prompted rare moves by the federal government, as well as some of the largest U.S. banks, to shore up finances at institutions threatened by the unrest.
Credit Suisse received nearly $54 billion last week from the Swiss National Bank as part of those negotiations, while a consortium of 11 major US banks, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, agreed to provide $30 billion for First Republic Bank. Those four banks agreed to contribute $5 billion each, while Goldman Sachs and Morgan Stanley agreed to contribute $2.5 billion each, and BNY Mellon, PNC Bank, State Street, Truist and US Bank each agreed to contribute $1 billion.
Pledges of emergency funding on Thursday briefly interrupted a long slide in the shares of both banks, which resumed the next day. Shares of Credit Suisse fell 7% on Friday to end the day at $2.01.
Shares in Credit Suisse, Switzerland’s second-largest commercial bank, fell 30% on the SIX stock exchange after its largest shareholder said would not cost more money to the institution. The bank has faced problems before US bank failures sparked fear and a lack of confidence among big investors, and on Thursday it announced plans to borrow up to 50 billion francs from the national bank.
“This additional liquidity will support Credit Suisse’s core business and customers as Credit Suisse takes the necessary steps to create a simpler and more focused bank based on customer needs,” Credit Suisse said in a statement at the time.
Credit Suisse’s sharp share price plunge a day earlier hit a record low after Saudi Arabia’s National Bank told news agencies it would not inject additional funds into the institution as it sought to avoid rules that would apply to stakes in the Swiss lender above 10%. The upheaval triggered an automatic trading freeze for Credit Suisse shares on the Swiss market and had a significant impact on shares of other major European banks, with some share prices falling by double digits.
Despite the move by the Swiss National Bank to support the finances of Credit Suisse, Capital Economics analysts said there remain concerns about the institution’s health, especially since it hasn’t been profitable in two years.
Andrew Cunningham, chief economist for Europe at Capital Economics, said in a note to investors on Friday that while Credit Suisse plans to resume business within three years, “it is not clear whether the markets will allow that much time.”