UBS’ takeover of Credit Suisse is a historic deal for Switzerland and the global banking industry.Credit:AP
The Swiss National Bank is offering a 100 billion-franc liquidity assistance to UBS while the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over. Regulator Finma said about 16 billion francs of Credit Suisse bonds will become worthless to ensure private investors help shoulder the costs.
The plan,negotiated in hastily arranged crisis talks over the weekend,seeks to address client outflows and a massive rout in Credit Suisse’s stock and bonds over the past week following the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank mid-week failed to end a market drama that threatened to send counterparties fleeing,with potential ramifications for the broader industry.
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“It was indispensable that we acted quickly and find a solution as quickly as possible” given that Credit Suisse is a systemically important bank,Swiss National Bank President Thomas Jordan said at a press conference late on Sunday[Monday morning AEDT].
US authorities had been working with their Swiss counterparts because both lenders have operations in the US and are considered systemically important in Switzerland,Bloomberg reported earlier. Authorities sought an agreement before markets opened again in Asia.
UBS Chairman Colm Kelleher said he will shrink Credit Suisse’s investment bank,a unit that has racked up losses in recent years,while he’s determined to keep the Swiss universal bank,the one business of Credit Suisse that remained a relative bastion of stability in the crisis.
“Let me be very specific on this:UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” he said at a press conference announcing the deal.