Over the weekend, the Swiss authorities agreed to modify the country’s regulations, allowing the announcement of the deal without the need for a shareholder vote. To prevent financial market instability, UBS Group made a deal to acquire Credit Suisse, its struggling competitor, for just over three billion dollars on March 19, under an emergency order.
According to a previous report by the Financial Times, an insider claimed that UBS had agreed to purchase Credit Suisse for more than two billion dollars. However, a recent statement from UBS clarified that the deal’s actual amount is approximately three billion Swiss francs, equivalent to over three billion dollars.
Despite this, it is still a considerable markdown from Credit Suisse’s market capitalization on March 17, valued at seven and a half billion francs or eight billion dollars.
Chairman of UBS Colm Kelleher explained that while this acquisition is appealing to UBS shareholders, it’s important to note that this is essentially an urgent rescue mission for Credit Suisse. Accordingly, we’ve devised a deal to safeguard the company’s remaining value while minimizing potential losses.
The Swiss authorities have consented to modify the country’s regulations to circumvent the need for a shareholder vote and have scheduled the deal’s announcement for the weekend before the market’s opening to finalize the transaction.
As per the reports, UBS is set to receive more than one hundred billion dollars in liquidity from the Swiss National Bank as part of the deal.
More on the Emergency Rescue
In its statement, UBS stated that the Swiss Federal Department of Finance, the Swiss Financial Market Supervisory Authority, and the Swiss National Bank jointly initiated the discussions, and they fully support the acquisition.
Over the weekend, Swiss authorities contemplated alternative options for Credit Suisse if the deal with UBS fell through, including the emergency option of fully or partially nationalizing the bank.
Including losses to bondholders in Credit Suisse’s rescue plan has raised concerns among European regulators that it could weaken investor confidence in the financial sector of Europe.
Since March 15, UBS and Credit Suisse have been discussing with regulators after the Swiss bank’s biggest shareholder, Saudi National Bank, announced that it would not raise its investment due to regulatory reasons.
The remarks further heightened concerns about the bank’s capacity to generate profits, fueling fears of potential shareholder financing. Founded in 1856 to fund the development of Swiss railways, Credit Suisse was regarded as the second-largest bank in the nation.
In conclusion, UBS Group’s acquisition of Credit Suisse is a significant development in the financial sector, as it has been carried out under emergency circumstances to prevent financial market instability.
Furthermore, the modification of Swiss regulations to allow for the announcement of the deal without needing a shareholder vote reflects the situation’s urgency. The deal includes liquidity support from the Swiss National Bank, which underscores the government’s commitment to safeguarding the stability of the Swiss financial system.
However, the inclusion of losses to bondholders in Credit Suisse’s rescue plan has raised concerns among European regulators, which could weaken investor confidence in the financial sector of Europe. Ultimately, it remains to be seen how this acquisition will impact the Swiss banking industry and the global financial system in the long run.