The Swiss Financial Market Supervisory Authority FINMA has approved the acquisition of Credit Suisse by competitor UBS.
The move was announced earlier today as Credit Suisse had endured a difficult week after rumblings of financial challenges at the bank. On March 15, FINMA issued a statement that it was ready to support Credit Suisse – if necessary. The next day Credit Suisse tapped into $54 billion in capital.
FINAM said that the Credit Suisse Group is experiencing a “crisis of confidence” and “considerable outflows of client funds.” The regulator said there was a risk of the bank becoming illiquid – even if it remained solvent.
The acquisition will result in a larger bank, meaning current regulations will require higher capital buffers.
The Swiss National Bank (SNB) also announced that it will provide “substantial liquidity assistance to support UBS takeover of Credit Suisse.”
SNB said the takeover was made possible with the support of the Swiss federal government and FINMA. SNB 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.
Both banks were said to have “unrestricted access to the SNB’s existing facilities.”
Credit Suisse and UBS may obtain a liquidity assistance loan with privileged creditor status in bankruptcy for a total amount of up to CHF 100 billion or about $108 billion. The money is expected to ensure that both banks have access to the necessary liquidity.
FINMA stated that the government support will trigger a complete write-down of the nominal value of all AT1 shares of Credit Suisse in the amount of around CHF 16 billion, and an increase in core capital.
All banking services will continue without interruption.
Update: Now UBS has posted a statement on the acquisition.
Under the terms of the all-share transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to CHF 0.76/share for a total consideration of CHF 3 billion (~ USD $3,24 billion).
UBS states that it benefits from CHF 25 billion of downside protection from the transaction to support marks, purchase price adjustments and restructuring costs, and additional 50% downside protection on non-core assets.
Both banks note they have unrestricted access to the SNB existing facilities, through which they can obtain liquidity.
The combination of the two businesses is expected to generate an annual run-rate of cost reductions of more than USD 8 billion by 2027. UBS expects the transaction will be EPS accretive by 2027, and the bank reports that it remains capitalized above its target of 13%.
The combined operation is expected to create a business with more than USD $ 5 trillion in total invested assets.
UBS Chief Executive Officer Ralph Hamers stated:
“Bringing UBS and Credit Suisse together will build on UBS’s strengths and further enhance our ability to serve our clients globally and deepen our best-in-class capabilities. The combination supports our growth ambitions in the Americas and Asia while adding scale to our business in Europe, and we look forward to welcoming our new clients and colleagues across the world in the coming weeks.”
UBS Chairman Colm Kelleher added:
“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure. Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses. The transaction will bring benefits to clients and create long-term sustainable value for our investors.”
The transaction is not subject to shareholder approval.
A presentation on the transaction is available here.