Credit Suisse has been sold in a cut-price deal aimed at staving off a new financial crisis.
The 167-year-old lender, which was valued at more than £65bn at its peak, has been taken over by arch-rival UBS in a £2.6bn deal just hours before financial markets opened, amid fears of panic if the bank’s value slid further when trading began.
Rival lenders were wargaming possible contagion across the European banking sector over the weekend, despite reassurances from officials that the sector was safe.
The merger of Credit Suisse and UBS is likely to lead to thousands of job losses in the City of London. The two banks currently employ around 11,000 people between them in the UK.
Fears that Credit Suisse could collapse within days prompted frantic talks over the weekend that had echoes of the 2008 financial crisis.
Credit Suisse was considered one of a clutch of global banks so important its failure would trigger a financial crash.
The Bank of England and Treasury both welcomed the bank’s sale, saying it would “support financial stability.”
Credit Suisse’s rescue will put pressure on the Bank of England not to raise interest rates at its next policy meeting on Thursday, with higher rates likely to put more pressure on weaker lenders.
Traders tonight cut back bets on a 0.25 percentage point increase this week in the wake of the news.
At a hastily organised press conference on Sunday evening, Alain Berset, president of Switzerland, said the rescue was needed to avoid “unthinkable” consequences for the country’s economy and global markets.
Karin Keller-Sutter, Swiss finance minister, said the failure of Credit Suisse risked “irreparable economic turmoil in Switzerland and throughout the world.”
Swiss officials held talks with Jeremy Hunt, the Chancellor, and Janet Yellen, the US Treasury Secretary, over the weekend about the rescue efforts.
Credit Suisse found itself in crisis amid a growing panic over the health of global banks.
The failure of a US lender, Silicon Valley Bank, ten days ago has prompted a slew of withdrawals from troubled or smaller banks amid concerns the rot could spread.
A mass sell-off in stock markets over the last two weeks has wiped almost $500bn from the value of global banks.
A $54bn loan from the Swiss National Bank last week failed to stop withdrawals at Credit Suisse, with $10bn said to have been pulled on Friday alone.
There are fears that a regional banking crisis in America could drag on, with President Joe Biden reportedly calling on Wall Street tycoon Warren Buffett for advice.
Mr Biden’s conversations with Mr Buffett, the chairman of Berkshire Hathaway, covered the possibility of him making further investments in the US banking sector, according to Bloomberg.
He previously stepped in to help finance both Goldman Sachs and Bank of America in the wake of the 2008 financial crisis, helping to shore-up confidence at critical junctures.
Credit Suisse, a once venerable Swiss bank to the privately wealthy that has more than £470bn in assets, has been beset by scandal in recent years. It has lost billions through a series of missteps and fines.
It came under pressure after a major shareholder said it would put no more money into the business, prompting a flood of clients to pull their money.
The Swiss Government had considered nationalising the bank if talks with UBS had failed.
Swiss politicians rapidly rewrote the country’s laws over the weekend to ensure the deal could be confirmed, bypassing shareholders.
Officials had raced to negotiate the shotgun merger of the two national banks before the opening of stock markets in Asia on Sunday evening, fearing a market meltdown if a solution had not been reached.
The Bank of England was reported by Sky News to have waived through the deal. Threadneedle Street last week held talks with British lenders, asking them to explain their current risk profiles on bond markets amid the turmoil at international rivals, The Telegraph reported.
A Bank of England spokesman said: “We welcome the comprehensive set of actions set out by the Swiss authorities today in order to support financial stability.
“We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation. The UK banking system is well capitalised and funded, and remains safe and sound.”
A Government spokesman said: “The UK Government welcomes the steps taken today by the Swiss authorities in relation to Credit Suisse to support financial stability, and will continue to engage with the FCA and the Bank of England as is usual.”
The Swiss National Bank (SNB) said the deal would “secure financial stability and protect the Swiss economy in this exceptional situation.”
Fears crisis not over despite rescue deal for Credit Suisse
By Matthew Field and Matt Oliver
Banks are bracing for more volatility in markets tomorrow after Swiss officials forced through a hastily arranged $3.2bn (£2.3bn) rescue deal for troubled Credit Suisse.
The 167-year-old bank was tonight sold to arch-rival UBS in a cut price deal intended to stabilise the Swiss financial system and stop the emergency escalating into a full-blown European banking crisis.
The Swiss National Bank has agreed to lend UBS up to 100 billion Swiss franc (£88bn) in emergency liquidity in an effort to shore up confidence.
The state also agreed to cover up to 9 billion Swiss francs in losses from certain parts of Credit Suisse, which is facing multiple legal battles.
However, observers warned that efforts to shore up confidence could fall short.
Mohamed El-Erian, chief economic advisor to Allianz, warned that UBS stock “may well come under pressure” on Monday morning as details of the deal emerged.
The cost of insuring UBS’s debt climbed in trading on Sunday. The bank’s credit default swaps, used to gauge its credit risk, widened by 40 basis points 215 bps on five-year contracts, Bloomberg reported.
Credit Suisse was forced into the arms of UBS after a run on the bank this week.
FINMA, Switzerland’s financial regulator, said tonight: “The Credit Suisse Group is experiencing a crisis of confidence, which has manifested in considerable outflows of client funds. This was intensified by the upheavals in the US banking market in March 2023.
“There was a risk of the bank becoming illiquid, even if it remained solvent, and it was necessary for the authorities to take action in order to prevent serious damage to the Swiss and international financial markets.”
Marc Rubinstein, a banking analyst who writes the Net Interest financial newsletter, said: “It’s distressed, clearly. It puts it alongside [the mergers of] Lloyds and HBOS, and JPMorgan and Bear Stearns.”
The combination was rushed through in a little over 48-hours of negotiations.
Shareholders in Credit Suisse, who include the Saudi National Bank, the Qatar Investment Authority and Blackrock, are facing huge losses on their investments.
Under the terms of the deal, Credit Suisse investors will receive just 1 share in the combined entity for every 22.48 shares they hold. The deal values Credit Suisse at less than half what it was worth at close of trade on Friday.
Legal & General, Schroders and HSBC all rank among Credit Suisse’s top 50 shareholders, though each own less than 1pc of the bank.
Holders of $17bn in Credit Suisse “additional tier 1” bonds saw their holdings wiped out as their value was written off to zero.
The deal is likely to provoke frustration from UBS shareholders, who will not get a vote on the transaction, after Swiss regulators and politicians issued an emergency directive to override market rules.
UBS said: “Pursuant to the emergency ordinance, which is being issued by the Swiss Federal Council, the merger can be implemented without the approval of shareholders.”
Credit Suisse was rated as one of 30 “global systemically important banks” viewed as too big to fail in the wake of the last financial crisis.
The crisis at Credit Suisse follows wider concerns about the global banking sector. Earlier this month Silicon Valley Bank, the Californian lender, collapsed after suffering billions of dollars in losses on wayward interest rate bets.
A coalition of Wall Street’s biggest banks were this week forced to inject $30bn into struggling regional lender First Republic as the crisis continued.
Credit Suisse has struggled with a series of scandals and mishaps in recent years but saw its share price plunge after its biggest shareholder, the Saudi National Bank, said it would not stump up any more funding.
Despite agreeing to a $54bn liquidity line with the Swiss central bank in the middle of this week, a flood of withdrawals continued and its shares fell by 10pc on Friday alone.
On Sunday, Colm Kelleher, UBS chairman, said the deal to combine with its rival was “in the best interest of Switzerland and protects our shareholders”. He said UBS planned to downsize Credit Suisse’s investment banking arm and would cut its risk taking, a move likely to lead to large job cuts in London.
Alex Lehmann, Credit Suisse chairman, said it was a “historic, sad and very challenging day” for the bank.
The Swiss National Bank said: “With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation.”