Swiss banking giant UBS will take over crisis-hit bank Credit Suisse in a deal backed by Switzerland's government. The deal comes after the Swiss federal government concluded that it was not possible to restore confidence in the aftermath of unprecedented liquidity outflows and market volatility caused by the Credit Suisse crisis.
"In this difficult situation, the takeover of Credit Suisse by UBS is the best solution for restoring the confidence that has been lacking in financial markets recently, and for best managing the risk to our country and its citizens," the Swiss government said.
While the Swiss National Bank (SNB) will give liquidity assistance to UBS to complete the transaction, other central banks around the world, like the US Federal Reserve and the European Central Bank offered liquidity assistance to the banking industry. The central banks said banks would be offered loans to avert the crisis from spreading.
As per the deal, the 167-year-old Credit Suisse will be acquired by UBS for 3 billion Swiss francs ($3.23 billion). UBS will also take over as much as $5.4 billion losses run up by the failed bank. Credit Suisse shareholders will get 1 UBS share for every 22.48 Credit Suisse shares under the deal. The deal will be completed by the end of the year.
The combined bank entity will account for a whopping $5 trillion in total invested assets.
"It's a historic day in Switzerland, and a day frankly, we hoped, would not come ... I would like to make it clear that while we did not initiate discussions, we believe that this transaction is financially attractive for UBS shareholders ..." UBS Chairman Colm Kelleher said.
According to the Swiss central bank, the takeover deal includes $108 billion (100 billion Swiss francs) in liquidity assistance for UBS and Credit Suisse.
Cost Cutting and Employee Future
Meanwhile, UBS Chairman Colm Kelleher also revealed that the investment bank under Credit Suisse will be shut following the completion of the deal. This will result in annual cost savings of some $7 billion by 2027, the executive said. There is no clarity on the future of thousands of employees working in the investment banking division of Credit Suisse.
According to a press release issued by Credit Suisse, there is no immediate implication for the employees. Credit Suisse will continue to conduct its business in the ordinary course 'until consummation of the merger', the statement says. It adds that the implementation of the restructuring measures will be carried out in collaboration with UBS. "UBS has expressed its confidence that the employment of the staff of Credit Suisse will be continued," it adds. Bu the presser also says that UBS is expected to 'appoint key personnel to Credit Suisse as soon as legally possible'.
"The implication is that it's business as usual for the next few months, although no one really knows what's going on," a Credit Suisse managing director was quoted as saying by Efinancialcareers.