UBS buys Credit Suisse to “restore confidence”

It’s official. The first Swiss banking group UBS is buying its struggling rival Credit Suisse, the President of the Swiss Confederation announced on Sunday March 19, believing that it was the best way to “restore trust”. This solution “is not only decisive for Switzerland (…) but for the stability of the entire financial system” world, assured Alain Berset. Credit Suisse and UBS will be able to obtain liquidity assistance of up to 100 billion Swiss francs, the Swiss central bank said.

Pushed by authorities, UBS agreed to buy rival Credit Suisse for $2 billion, according to the FinancialTimes (article in English). Objective: to prevent a debacle and panic in the markets on Monday. According to the British financial daily, UBS agreed to double the amount initially proposed to overcome the reluctance of Credit Suisse and one of its main shareholders.

The transaction would be made only in UBS shares and would value the Credit Suisse share at a price of 50 cents, instead of the 25 initially proposed, which remains much lower than the share price on Friday at the close (1.86 francs). The transaction is examined in Bern by the federal government, already meeting urgently on Thursday and Saturday.

A strained banking sector

The merger between these giants, which are both part of the very closed club of 30 too big to fail banks, should therefore be completed and announced in time for the opening of the Asian markets.

The banking sector has been under stress since the major central banks have raised their rates sharply in an attempt to control inflation. Many institutions have failed to prepare after years of having access to cheap money. The recent bankruptcy of the Silicon Valley Bank in the United States and other regional American banks has increased the anxiety of investors and pushed them to sell the securities of the banks considered to be the weak links. This is the case of Credit Suisse which, for the past two years, has gone from resounding scandals to reverses.