UBS agrees to buy rival Credit Suisse as regulators seek to bolster global banking system

By Ashley Capoot -

UBS has agreed to buy its embattled rival Credit Suisse.

Swiss regulators have played a key role in the operation, at a time when governments are trying to stem the contagion that threatens the global banking system.

The UBS deal came after Credit Suisse shares posted their worst weekly drop since the start of the coronavirus pandemic, despite announcing it would agree to a loan of up to 50 billion Swiss francs ($54 billion). of the Swiss central bank.

Credit Suisse had already been battling a series of losses and scandals, and sentiment was rocked again in the past two weeks by the collapse of US banks Silicon Valley Bank and Signature Bank.

US regulators' backing of uninsured deposits from failing banks and the creation of a new financing mechanism for troubled institutions failed to stem the commotion that threatened to engulf more banks both in the US and abroad. .

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Despite the involvement of regulators in the merger, the deal gives UBS autonomy to manage the acquired assets as it sees fit, which could mean significant job cuts, sources told CNBC's David Faber.

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Credit Suisse's scale and potential impact on the global economy is far greater than that of regional US banks, putting pressure on Swiss regulators to find a way to unite the country's two largest financial institutions.

Credit Suisse's balance sheet is about twice that of Lehman Brothers when it went under, at about 530 billion Swiss francs at the end of 2022. It is also much more globally interconnected, with multiple international subsidiaries, making it even more important. orderly management of Credit Suisse's situation.

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The union of the two rivals was not without difficulties, but in the end the pressure was imposed to avoid a systemic crisis.

UBS initially offered to buy Credit Suisse for about $1 billion on Sunday, according to various news outlets.

Credit Suisse reportedly rejected the offer, saying it was too low and would hurt shareholders and employees, people familiar with the matter told Bloomberg. 

On Sunday afternoon, UBS was in talks to buy the bank for "substantially" more than 1 billion Swiss francs, sources told CNBC's Faber.

Faber stated that the price of the transaction increased throughout the day's trading.

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Credit Suisse lost around 38% of its deposits in the fourth quarter of 2022 and revealed in its delayed annual report early last week that the outflows have yet to reverse.

It reported a net loss of 7.3 billion Swiss francs for the full year of 2022 and expects another "substantial" loss in 2023.

The bank had previously announced a massive strategic overhaul in an attempt to address these chronic problems, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.