UBS has struck a deal to purchase troubled Credit Suisse for $3.2 billion, as bank solvency fears continue to batter global markets.
Why it matters: Aggressive central bank action to arrest stubborn inflation has shaken investor confidence, with financial institutions caught in the crosshairs.
The details: Under the terms of the all-share transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares, for a total consideration of 3 billion Swiss francs ($3.2 billion). The deal is expected to be finalized by year-end.
- UBS offer represents a fraction of the bank's roughly $8.5 billion market capitalization as of Friday's close.
- The Swiss National Bank agreed to lend up to 100 billion francs to UBS to support the transaction.
- Finma, the Swiss financial regulator, took the extraordinary step of enforcing that $17 billion worth of higher-risk Credit Suisse’s bonds would be wiped out. The regulator also eliminated the need for shareholders to vote on the deal.
Flashback: After years of mismanagement and scandal-ridden headlines, the storied 167-year-old European banking giant was laid low by a crisis rattling the banking sector in the wake of Silicon Valley Bank's failure.
- Credit Suisse, one of a handful of global financial institutions deemed "systemically important," posted a fourth-quarter loss of over $1 billion. Over the last few days, it has suffered mass outflows as problems mounted and bank sector concerns festered, pushing its stock to record lows.
What they're saying: “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome," Axel P. Lehmann, Credit Suisse's chairman said in a statement.
- "This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome," he added.
Zoom out: A jittery Wall Street has pummeled bank stocks over the last few weeks, with some fearing another worldwide liquidity crisis.
- Capital Economics wrote in a note on Friday that "more problems may yet emerge at other commercial banks in the US. But the industry there as a whole doesn’t have a worryingly high uninsured deposit ratio or unrealized losses on 'held-to-maturity' securities in excess of capital."
- "And if more skeletons do emerge from the closet, this is more likely to be the case for banks that have been relatively lightly regulated because they pose less of a risk to the economy," the firm added.
