Credit Suisse was rescued by its Swiss rival UBS in a government-backed transaction. The announcement on Sunday evening followed a weekend of emergency discussions between the two banks and Switzerland's financial regulators.
The Swiss National Bank stated that the agreement was the most effective means of restoring financial market confidence and mitigating economic risks. The Bank of England stated its approval of the "extensive set of actions."
Credit Suisse shareholders will receive one share of UBS for every 22.48 Credit Suisse shares they own, valuing the bank at $3.15 billion (£2.6 billion). Friday evening, Credit Suisse was valued at approximately $8 billion (£6.5 billion). However, the deal has accomplished what regulators intended - securing a resolution before Monday's opening of the financial markets.
The Swiss central bank stated in a statement that "a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation." The federal government stated it would provide a $9.6bn (£7.6bn) guarantee against potential UBS losses in order to mitigate any potential risks.
In addition, the Swiss central bank has made up to $110 billion (£90 billion) in liquidity assistance available. Global financial institutions praised the transaction immediately. The Bank of England expressed its approval of the Swiss authorities' "comprehensive set of actions." Throughout the preparations for today's announcements, we have worked closely with international counterparts and will continue to support their implementation.
It was stated that the British banking system was "well capitalized and funded, and remains sound." The British government will continue to engage with the Financial Conduct Authority (FCA) and the Bank of England "as usual," according to sources.
As both UBS and Credit Suisse have operations in London, the FCA stated on Sunday that it was "inclined to approve" the merger to promote financial stability. Sources mentioned that "The FCA continues to work closely with international regulatory partners and the UK to monitor market developments."
Christine Lagarde, president of the European Central Bank, praised the "rapid response" of the Swiss government. Ms. Lagarde mentioned that they are important for restoring orderly market conditions and ensuring financial stability. The Treasury Secretary, Janet Yellen, and the Chairman of the Federal Reserve Board, Jerome Powell, concurred that the Swiss authorities' announcement promoted "financial stability."
Credit Suisse is the latest and most significant casualty of a confidence crisis that has already claimed the lives of two mid-sized U.S. banks and prompted an emergency industry bailout for another. However, this is distinct. Switzerland's second-largest lender was regarded as one of the top 30 most significant banks in the world, which is why the Swiss government rushed this acquisition. The capital and liquidity positions of the US banking system, as well as the US financial system, were stated as robust.
The weekend deal comes after a $54 billion (£44.5 billion) emergency lifeline from the Swiss National Bank on Wednesday failed to reassure markets and Credit Suisse shares fell 24%, triggering a wider sell-off on European markets.
The 167-year-old bank operates at a loss and has encountered numerous issues in recent years, including money laundering charges.