By
Bhushan Akolkar
April 12th, 2024
To cover potential losses of 9 billion francs ($9.9 billion) that result from winding down parts of Credit Suisse’s business, UBS has reached an agreement with the Swiss government.
Swiss banking giant UBS Group AG (SWX: UBSG) has finally completed the emergency takeover of the Credit Suisse Group AG (SWX: CSGN). The deal that started back in March as a $3.2 billion acquisition has been finalized, with a number of limitations and “red lines” for Credit Suisse expected to be imposed.
Firstly, among such limitations is a ban on acquiring new clients from high-risk countries for Credit Suisse bankers. These countries include Libya, Russia, Sudan, Belarus, the Democratic Republic of Congo, El Salvador, Ethiopia, Guinea, Haiti, Iraq, Kosovo, Kyrgyzstan, Venezuela, and more. Secondly, Credit Suisse employees are prohibited from participating in complex financial activities. Further, they can not launch new products without getting approval from UBS management.
The full list of “red lines” issued by UBS executives encompasses 11 financial risks and 12 non-financial risks. The prohibitions have been designed to mitigate any risk of the takeover that UBS might incur.
According to UBS CEO Sergio Ermotti and Chairman Colm Kelleher, the deal is “the start of a new chapter” for both UBS and Credit Suisse. It not only creates a new powerful financial institution but also marks the end of a tough period for the banking industry.
UBS Takeover of Credit Suisse: Other Details
A few months ago, the whole banking industry was facing significant challenges. For Credit Suisse, the crisis was fatal, the bank reached the brink of default. To prevent further consequences of the crisis, the Swiss regulators were seeking an emergency solution, which was the acquisition of Credit Suisse by UBS Group. The agreement was signed on March 19, and the sum of the acquisition totaled $3.2 million. Notably, the amount was as much as 60% down from the bank’s $8 billion market cap as of March 17. The deal was backed by the Swiss National Bank, the Swiss Federal Department of Finance, and the Swiss Financial Market Supervisory Authority (FINMA) brokered the deal between the two banks. According to the Swiss National Bank, the acquisition provided a solution “to secure financial stability and protect the Swiss economy in this exceptional situation”.
As the deal was an emergency solution, Credit Suisse shareholders did not have a vote in favor or against the acquisition. Now, when it is completed, they will receive one UBS share for every 22.8 outstanding shares they hold, as agreed between the two banks.
UBS has also reached an agreement with the Swiss government to cover potential losses of 9 billion francs ($9.9 billion) that result from winding down parts of Credit Suisse’s business.
Swiss regulators commented:
“To make the takeover possible, the government granted UBS a guarantee for any losses incurred in the liquidation of Credit Suisse assets. The guarantee will only come into effect if the losses from the liquidation of these assets exceed 5 billion Swiss francs and is limited to a total of 9 billion francs.”
The headquarters of UBS will remain in Switzerland. The total assets overseen by the group total $5 trillion.