20/03/2023, 16:29 UBS agrees $3.

25bn rescue deal for rival Credit Suisse | Financial Times

Credit Suisse Group AG

UBS agrees $3.25bn rescue deal for rival Credit Suisse

Regulators engineer takeover of stricken bank by larger Swiss competitor after frantic weekend

Arash Massoudi, Stephen Morris, James Fontanella-Khan, Laura Noonan, Owen

Walker in London and Sam Jones in Zurich YESTERDAY

UBS agreed to buy Credit Suisse for $3.25bn after a frantic weekend of
negotiations brokered by Swiss regulators to safeguard the country’s banking
system and attempt to prevent a crisis spreading across global markets.

The historic deal follows five days in which the Swiss establishment raced to end a
deepening crisis at Credit Suisse that threatened to topple the country’s second-
largest lender.

An emergency SFr50bn ($54bn) credit line provided by the Swiss National Bank
on Wednesday failed to arrest a steep decline in the bank’s share price, which was
exacerbated by wider market turmoil caused by the sudden collapse of California-
based Silicon Valley Bank earlier this month.

“On Friday the liquidity outflows and market volatility showed it was no longer
possible to restore market confidence, and a swift and stabilising solution was
absolutely necessary,” Swiss president Alain Berset said at a press conference in
Bern on Sunday evening. “This solution was the takeover of Credit Suisse by UBS.”

UBS will pay about SFr0.76 a share in its own stock, worth SFr3bn, up from a bid
of SFr0.25 earlier on Sunday worth about $1bn that was rejected by the Credit
Suisse board. However, the offer remains far below Credit Suisse’s closing price of
SFr1.86 on Friday.

As part of the deal, the SNB has agreed to offer a SFr100bn liquidity line backed by
a federal default guarantee to UBS, the Swiss finance ministry said. The
government is also providing a loss guarantee of up to SFr9bn, but only after UBS
has borne the first SFr5bn of losses on certain portfolios of assets.

The combination creates one of the biggest banks in Europe. UBS has $1.1tn of
total assets on its balance sheet and Credit Suisse has $575bn.

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“This is no bailout. This is a commercial solution,” said Swiss finance minister

Karin Keller-Sutter. “The bankruptcy would have had huge collateral damage on
the Swiss financial market and with a risk of contagion internationally.”

She added: “The US and UK were very grateful for this solution . . . they really
feared a bankruptcy of Credit Suisse.”

The takeover means the end for the 167-year-old bank whose headquarters faces its
fierce rival UBS across Zurich’s Paradeplatz square.

It caps a calamitous few years for Credit Suisse marked by twin crises linked to
specialist finance group Greensill Capital and family office Archegos in 2021 which
resulted in billions of dollars of losses and severely damaged the bank’s reputation
for risk management.

Under the terms of the deal, about SFr16bn of Credit Suisse’s additional tier 1
(AT1) capital bonds, which are designed to take losses when institutions run into
trouble and to transfer the risk of a bank failure from taxpayers to investors, are
being wiped out.

Credit Suisse said in its statement on Sunday evening that Swiss market regulator
Finma had determined the bonds would “be written off to zero”. About SFr1bn of
other capital was also written off.

UBS also agreed to remove a material adverse change clause present in the initial
proposal, which would have allowed it to back out of the takeover if its credit
default spreads jumped by 100 basis points or more before the deal closes.

The Swiss federal council, the executive arm of government, will issue an
emergency ordinance to waive regulatory and governance hurdles to the swift
closing of the transaction. Swiss parliamentarians will also eventually have to
approve the process — albeit retrospectively: a vote will be held within the next six
months.

Federal Reserve chair Jay Powell and US Treasury secretary Janet Yellen said they
welcomed the move by “Swiss authorities today to support financial stability”. That
was echoed by European Central Bank president Christine Lagarde, who said the
rescue of Credit Suisse “was instrumental for restoring orderly market conditions
and ensuring financial stability”.

The deal came after Credit Suisse chief executive Ulrich Körner had been unable to
draw a line under the bank’s crises during his eight-month tenure, with a
restructuring plan that included spinning off its investment bank and cutting
9,000 jobs failing to convince investors.
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20/03/2023, 16:29 UBS agrees $3.25bn rescue deal for rival Credit Suisse | Financial Times

Customers withdrew SFr111bn from the group in the final three months of last
year. Deposit outflows from Credit Suisse late last week topped SFr10bn a day, the
Financial Times has previously reported.

Shares in Credit Suisse are down more than 74 per cent over the past year, leaving
its market capitalisation on Friday at just $8bn, dwarfed by the roughly $57bn
market cap of UBS.

In 2022, UBS made $7.6bn of profit while Credit Suisse slumped to a $7.9bn loss,
effectively wiping out the entire previous decade’s earnings.

The deal cements UBS’s position as the world’s largest wealth manager, with
operations spanning the US, Europe, Middle East and Asia. The combined entity
will have $5tn of invested assets globally.

“UBS will remain rock solid,” said UBS chair Colm Kelleher, who will continue to
lead the combined entity with chief executive Ralph Hamers.

Kelleher said Credit Suisse’s Swiss division was “a fine asset that we are very
determined to keep” and that it was too early to give an estimate of job cuts across
the various divisions UBS was acquiring.

However, he said the bank “intends to downsize Credit Suisse’s investment

banking business” so that it accounted for no more than 25 per cent of the group’s
risk weighted assets” and “align it with our conservative risk culture”.

Additionally, a plan to spin off the advisory and capital markets operations with
the First Boston brand under the leadership of Michael Klein will be reviewed and
could be cancelled, according to a person with knowledge of the plans.

Finma has given UBS the right to block any material changes at Credit Suisse until
it is fully in control of its rival.

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