Switzerland's largest bank, UBS, is acquiring its rival Credit Suisse for $3.2 billion in an acquisition deal designed to protect the Swiss economy after panic ensued following the collapse of Silicon Valley Bank (SVB) and Signature Bank last month.
"With the acquisition of Credit Suisse by UBS, a solution has been found to maintain financial stability and defend the Swiss economy in this extraordinary scenario," the Swiss National Bank announced on its website on Sunday. The Swiss federal government, the Swiss Financial Market Supervisory Authority (FINMA), and the Swiss National Bank approved the takeover of Credit Suisse.
CNN reports that the acquisition comes amid recent turbulence in global banking and fears about weak banks during a period in which rising interest rates have affected the value of some financial assets.
Credit Suisse announced earlier this week that it would borrow roughly $54 billion from the Swiss central bank to assuage market concerns that it, like SVB and Signature Bank, could fail.
The Swiss regulator FINMA and the Swiss National Bank provided financial assistance after a day of panic trading last week. On Thursday, Credit Suisse announced on its website that it would accept the central bank's offer to borrow 50 billion Swiss francs, or approximately $53.7 billion.
The decision was made after the bank's shares dropped as much as 31 per cent on Wednesday, causing investors to fear it would collapse under the weight of losses caused by a sudden increase in U.S. interest rates. Officials from the Saudi National Bank, which controls approximately 10 per cent of the bank's capital, stated that they would not purchase further shares to save the financial institution.
Credit Suisse has long been judged systemically significant and too large to fail by global regulators. At the end of 2022, the Swiss investment bank had $574 billion in assets and around $1.7 trillion in its asset management division.
Yet, the bank was damaged by a history of financial scandal and market turbulence caused by the Federal Reserve's aggressive push to raise interest rates to combat inflation.
Based on the Federal Council's Emergency Act, the Swiss National Bank stated that Credit Suisse and UBS could obtain a liquidity assistance loan of up to CHF 100 billion ($107.8 billion) with favoured creditor status in the event of bankruptcy.
Sunday, Swiss President Alain Berset told the Associated Press that the takeover is imminent and "of tremendous importance for international financial stability. A collapse of Credit Suisse without control would have unfathomable repercussions for the nation and the international financial system."
In addition, Swiss Finance Minister Karin Keller-Sutter expressed concern that the bank, "formerly a model institution in Switzerland and an integral component of our strong location," has ended up in this predicament.