UBS buys crisis-ridden Credit Suisse bank to avoid financial chaos

Banking giant UBS will buy struggling rival Credit Suisse in a quick deal brokered by Swiss authorities to avert further market chaos after a string of high-profile financial bankruptcies.

Swiss market watchdog Finma approved the takeover, which came after frantic talks between bank bosses and ministers desperate to strike a deal before jittery investors took to the market on Monday morning.

UBS, a Swiss-based international investment bank, will pay 3bn francs (£2.66bn) to acquire its smaller rival – well below the price one would have expected in less urgent circumstances.

Negotiations were unfolding in the wake of the biggest bank failures since the financial crash of 2008, and with one of the world’s leading investment banks hovering around the abyss, officials were ready to sidestep regulations such as the shareholder approval in order to force a deal.

Sources familiar with the talks told the FinancialTimes contacts between the two banks were limited, with conditions heavily influenced by the Swiss National Bank (SNB) and Finma. The holdings will be exchanged at the rate of 1 UBS share for 22.48 Credit Suisse shares.

Swiss Finance Minister Karin Keller-Sutter said the collapse of Credit Suisse “would have had enormous collateral damage” internationally. “I was in touch with my colleagues in the UK and the US,” she said. “They were very grateful for this solution because they really feared that there could be a bankruptcy of Credit Suisse, with all the losses.”

The merger was welcomed internationally, with the US Federal Reserve and Treasury saying Switzerland had taken steps to “support financial stability”. British Chancellor Jeremy Hunt and the Bank of England also welcomed the deal.

Christine Lagarde, president of the European Central Bank, said Switzerland’s actions were “key to restoring orderly market conditions”. Experts pointed to early central bank involvement as an encouraging difference between recent financial shocks and those of 2008.

The 167-year-old Credit Suisse was on the brink of financial disaster this week despite a £45bn emergency loan from the Swiss central bank. Its shares fell to a record high after its largest investor, the Saudi National Bank, said it would no longer invest money in the bank to avoid triggering regulations that would come into effect if its stake increased by ‘around 10 %.

The government loan was agreed to reassure markets and depositors, but it failed to stop a rush of withdrawals by account holders, prompting the Swiss government to seek a merger.

Credit Suisse is one of 30 so-called systemic global banks considered important for the global financial structure. Industry experts expect its troubles to have a ripple effect on the global banking industry.

Shares fell 8% to close at 1.86 francs (£1.65) on the Swiss stock exchange on Friday. The stock has been on a long downward slide, having traded at more than 80 francs in 2007.

The bank’s decline has become nearly terminal after bosses announced on Tuesday they had identified “material weaknesses” that allowed for potential inaccuracies in its financial reporting late last year.

It stoked fears that Credit Suisse could be the next domino to fall after the collapse of two major US banks last week prompted a frantic and broad response from the US government to avert further panic.

Credit Suisse has $1.4 trillion (£1 trillion) in assets under management and has major trading desks around the world. It caters to the rich and the wealthy through its wealth management business and is a major advisor to global companies in mergers and acquisitions.

It is one of the largest investment banking employers in the City of London, employing around 5,000 people. It was unclear what the takeover would mean for the bank’s global workforce, although sources earlier in the weekend told Reuters that UBS could be forced to cut 10,000 jobs.

The US, UK and Swiss central banks are all holding meetings scheduled for this week. Despite still-high inflation, the banking turmoil has forced traders to quickly shift their expectations for further rate hikes, as higher interest rates may lead to lower demand for new loans, hurting bank profits .