The acquisition of Credit Suisse with UBS will produce a banking titan unprecedented of in Switzerland’s history, where in banking is a vital part of country’s identity.
Here are the key terms of the 3.25 billion dollar settlement. Which was reached on Sunday following protracted negotiations involving the govt, financial watchdogs, and the central bank.
The 2-largest bank in the nation, Credit Suisse, has been in trouble for the past 2 years & was one of 30 global financial firms deemed too big to fail.
The deal’s fate is therefore crucial for Switzerland, our businesses, individual clients, and its own staff. As well as for the stability of the global financial system, according to Swiss President Alain Berset.
Credit Suisse’s collapse may have resulted in “irreparable economic instability,” according to Finance Minister Karin Keller-Sutter. Switzerland must thus assume responsibilities outside of its own boundaries, she said.
The Union Bank of Switzerland acquisition of Credit Suisse “has set the stage for increased stability both domestically and abroad.” With more than 5 trillion dollar in total invested assets, Union Bank of Switzerland Chairman Colm Kelleher claimed that the transaction strengthened his bank’s position as a leader in worldwide wealth management.
The merging of the 2 businesses is anticipat to result in annual run-rate price cuts of more than 8 billion dollar by 2027. According to a statement from Union Bank of Switzerland. “It will also further enhance our position as the most significant Swiss global bank.” — added Union Bank of Switzerland.
Credit Suisse’s Rescue
As part of the all-share deal, Credit Suisse shareholders would receive 0.76 Swiss francs (or one UBS share) for every 22.48 Credit Suisse shares they own. Which is significantly less than Friday’s closing price of 1.86 Swiss francs.
But, in accordance with a deal negotiated with the Swiss authorities & regulatory bodies. This takeover will not be put to a shareholder vote. The unusual merger between the 2 largest banks in the nation will also be decided without input from the Competition Commission.
Credit Suisse’s high-risk debt holders are among the deal’s greatest losers because the Swiss government demanded that 16 billion Swiss francs’ worth of so-called extra layer 1 (AT1) notes be totally written off.
The larger bank that will come from the acquisition will need stronger capital buffers. According to the current standards, according to FINMA.
During the global financial crisis of 2008. AT1 bonds were develop to shift the cost of losses from taxpayers to investors. The merger is anticipat to be complete by the end of 2023, if not earlier, according to Credit Suisse.
Credit Suisse will continue to carry out its restructuring programme “in conjunction with Union Bank of Switzerland” in the interim. The Swiss financial watchdog, FINMA, stated that all of the bank’s services will be uninterrupted.
Concerns Among Investors
This will provide depositor protection because accounts, security accounts, & other services (e-banking, counters, ATMs, credit and debit cards) will all continue to be available as usual, according to the statement.
Credit Suisse’s wealth management, asset management, and Swiss domestic banking—including its retail banking & loans to small & medium businesses be transfer to Union Bank of Switzerland..
One of the riskier components of the Credit Suisse portfolio. “UBS plans to reduce Credit Suisse’s investment banking division and align it with our conservative risk culture,” Kelleher said.
The objective is for the time of uncertainty to be as brief as possible. But neither Kelleher nor Credit Suisse chairman Axel Lehmann provided specifics on probable job cutbacks.
The Swiss government provided Union Bank of Switzerland with a 9 billion Swiss franc guarantee to cover any losses that might result from specific assets that Union Bank of Switzerland acquires in order to expedite the purchase.
The central bank & the Swiss National Bank, will also provide the 2 banks with sizeable assistance in the form of liquidity totaling up to 100 billion Swiss francs.