The Swiss authorities, tired of watching the torment of Credit Suisse, almost forcibly forced another bank, UBS, to buy out a competitor. He agreed, but offered a price that, in his opinion, reflects the real value of Credit Suisse today - $ 1 billion, which is eight times less than its market capitalization.
The two largest banks in Switzerland with a century and a half history of confrontation are close to merging, reports Financial Times. Neither UBS nor Credit Suisse (CS) wanted this. But the country's authorities are adamant: UBS is ordered to buy out a smaller competitor to save it from collapse, and customers from losing savings.
The fact that UBS and Credit Suisse could merge became known on Thursday, March 16th. All these days, the country's authorities have been negotiating both with the two main actors of the upcoming deal, and with other banks - in the event of the option of splitting CS and selling it in parts. But the negotiators refused this option.
The Swiss government and regulators eventually insisted that UBS buy Credit Suisse in its entirety. Although UBS did not want to acquire a troubled competitor at all, keeping in mind all the risks associated with Credit Suisse. And according to sources of the Financial Times, representatives of the two banks had little to no direct contact with each other.
On Sunday morning, UBS put forward its terms: 0.25 Swiss francs per share of Credit Suisse, which will be paid to the holders of the papers not in cash, but in the form of UBS shares.
The offered price is well below the level of Credit Suisse shares at the close of trading on Friday - at that time, one share of CS was worth 1.86 Swiss francs. In total, UBS is willing to pay no more than $1 billion for its competitor, more than eight times its market capitalization. In addition, UBS insisted on including a void clause in the deal if its own credit default swap spreads increased by 100 basis points due to the purchase of a competitor.
In general, according to sources following the negotiations, the situation around Credit Suisse is changing very quickly and there are no guarantees that the terms of the purchase proposed by UBS will eventually be accepted.
According to the FT, the Swiss government is so concerned about the state of Credit Suisse that they are ready to give up the formal procedures necessary for the merger of the two banks.
Specifically, the government plans to introduce legislation that would bypass the usual six-week consultation period required by UBS shareholders so that a deal can be struck as quickly as possible, the sources said. How important the deal is for the entire global banking sector is also evidenced by the fact that it has already been approved by the US Federal Reserve.
Credit Suisse has been in serious trouble for several years. And the bank ended 2022 with a loss of $7.9 billion, which was the worst result since 2008. And according to the results of the last three months of the year, customers withdrew 111 billion Swiss francs from the bank's accounts. The situation for Credit Suisse was exacerbated by a sudden bankruptcy Silicon Valley Bank and the closure of Signature Bank, which caused a lot of investor anxiety.
And on March 13, Credit Suisse said it found "material deficiencies" in its financial statements. This sent the stock down 30%. In order to somehow reassure investors and clients of CS, the Swiss National Bank decided to urgently provide a sinking bank with a loan of about 50 billion Swiss francs. But by the weekend, the Swiss authorities made sure to get preliminary approval from European and US regulators for the merger between UBS and Credit Suisse, the newspaper's sources say.
According to FT sources, after the closing of the transaction, UBS will reduce the investment banking division of Credit Suisse, which has been causing serious losses in recent times. What will happen to the rest of the bank's divisions is not specified. The parties declined to give official comments on the course of the talks. However, it is quite possible that the deal will be officially announced this evening.