By Archie Mitchell Business Correspondent For The Daily Mail and Tom Cotterill and James Reynolds For Mailonline
23:04 19 Mar 2023, updated 23:27 19 Mar 2023
- Despite $54billion lifeline from Swiss National Bank, Credit Suisse forced to sell
- Investor and client confidence plunged following string of scandals tied to bank
Thousands of British jobs could be in the firing line after one of Switzerland’s largest banks was saved from the brink of collapse tonight.
Credit Suisse was bought by rival USB in a dramatic shotgun wedding of two of Switzerland’s most established financial institutions.
The tie-up managed to avert an ‘unthinkable’ catastrophic collapse of Credit Suisse, which would have been the worst financial disaster since the 2008 banking crisis.
But while dodging a financial meltdown, the rescue deal has put thousands of jobs in the UK at risk. The Swiss banks employ more than 11,000 staff in the City of London and Canary Wharf and heavy job losses are expected as a result of the merger.
As one of the world’s 30 ‘systemically important’ banks, Credit Suisse is considered large enough that its failure would lead to wider financial problems.
The deal capped a torrid week for Credit Suisse in which its shares fell by more than any time since the outbreak of Covid – even after being thrown a £45billion lifeline by the Swiss authorities.
The whole banking sector has been shaken by the collapse of US-based lenders Silicon Valley Bank, Silvergate and Signature Bank.
Alain Berset, President of the Swiss Confederation, said ‘unthinkable consequences for Switzerland and the world’ had Credit Suisse been allowed to fail, after it ‘lost the confidence of the market’
At a hastily arranged conference in Switzerland’s capital Bern last night, Mr Berset said: ‘Credit Suisse is one of two major banks in the country.
‘Its destiny is not only decisive for Switzerland’s businesses and its private customers and employees – but essential for the stability of the whole in financial sector.’
He said the bank had been a ‘source of concern’ for a few months and the tie up was the ‘best solution’ for restoring confidence to financial markets.
The final deal is believed to value Credit Suisse at up to £1.6billion, which is a fraction of its value at the end of last week.
It will also see Credit Suisse’s shareholders virtually wiped out. Talks were orchestrated by the Swiss National Bank and regulator Finma, with the Bank of England understood to have given its blessing to the deal.
Hargreaves Lansdown analyst Susannah Streeter said ‘markets will be calm’ following the deal.
‘There will be relief that the authorities are clearly ready to do what it takes to bring about stability,’ she said.
Christine Lagarde, president of the European Central Bank, said: ‘I welcome the swift action and the decisions taken by the Swiss authorities.
‘They are instrumental for restoring orderly market conditions and ensuring financial stability. The euro area banking sector is resilient, with strong capital and liquidity positions.’
USB agreed to buy Credit Suisse after increasing its offer from about $1billion to more than $2bn (£1.64bn) following urgent talks today.
The banking giant will pay more than 0.50 francs ($0.5401) a share in its own stock, far below Credit Suisse’s closing price of 1.86 francs on Friday, FT reported, citing sources.
The agreement follows meetings earlier today in Bern between the Federal Council, the Swiss National Bank, UBS and Credit Suisse to settle the future of the bank.
Confirming the deal at a press conference this evening, Swiss Finance Minister Karin Keller-Sutter said: ‘The bankruptcy of a globally systematically important bank would have caused irreparable economic turmoil in Switzerland and throughout the world. For this reason, Switzerland had to take the responsibilities beyond its own borders.
‘These efforts have paid off. The federal council is convinced that UBS’ takeover of Credit Suisse has laid the foundations for greater stability both in Switzerland and internationally.’
The Bank of England echoed the sentiment in a statement: ‘We welcome the comprehensive set of actions set out by the Swiss authorities today in order to support financial stability. We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation.’
Investor confidence plunged following a string of scandals tied to Credit Suisse, and the separate collapse of Silicon Valley Bank on March 10.
The Financial Times, which was the first on Friday to report the prospect of Switzerland’s biggest bank swallowing up Credit Suisse, said UBS had offered to buy it for up to $1billion (£820mn).
The transaction would be worth 25 cents (0.23 Swiss francs) per Credit Suisse share, the FT said.
But the 167-year-old bank pushed back on UBS’ initial offer, with the support of its largest shareholder, believing that it was too low and settling on $2bn.
Authorities urged UBS to get the deal over the line before the stock exchange reopened on Monday in order to reassure investors and avoid a spread of panic on the markets. A merger of this scale would usually take months to complete.
The SonntagsZeitung newspaper called it ‘the merger of the century’.
‘The unthinkable becomes true: Credit Suisse is about to be taken over by UBS,’ the weekly said.
The government, FINMA and the SNB ‘see no other option’, it claimed.
UBS agreed to assume up to $5.4bn (5bn francs) in losses as part of the shotgun merger engineered by Swiss authorities.
The deal includes 100bn Swiss francs ($108bn) in liquidity assistance for UBS and Credit Suisse from the Swiss central bank.
At a press conference on Sunday evening, Swiss President Alain Berset said the deal was supported by the federal council and negotiating parties.
He said the takeover was the best way of restoring confidence in the financial system.
The British government welcomed the steps taken by Switzerland to ‘support financial stability’.
‘The UK Government welcomes the steps taken today by the Swiss authorities in relation to Credit Suisse to support financial stability,’ finance minister Jeremy Hunt said on Twitter.
‘The Bank of England has confirmed the UK banking system remains safe, sound and well capitalised,’ he added.
The US Treasury also welcomed the resolution. A joint statement from treasury secretary Janet L. Yellen and Federal Reserve Board Chair Jerome H. Powell read: ‘We welcome the announcements by the Swiss authorities today to support financial stability.
‘The capital and liquidity positions of the US banking system are strong, and the US financial system is resilient. We have been in close contact with our international counterparts to support their implementation.’
Christine Lagarde, President of the European Central Bank, released a statement saying: ‘I welcome the swift action and the decisions taken by the Swiss authorities.
‘They are instrumental for restoring orderly market conditions and ensuring financial stability.’
After suffering heavy falls on the stock market last week, Credit Suisse’s share price closed on Friday at 1.86 Swiss francs, with the bank worth just over $8.7billion.
Credit Suisse’s share price has dropped from 12.78 Swiss francs in February 2021 following a string of scandals.
Despite the drop, Credit Suisse were able to negotiate sale terms of twice the initial UBS offer.
While smaller than its Swiss rival UBS, Credit Suisse still wields considerable influence, with $1.4 trillion assets under management.
The firm has significant trading desks around the world, caters to the rich and wealthy through its wealth management business, and is a major advisor for global companies in mergers and acquisitions.
Notably, Credit Suisse did not need government assistance in 2008 during the financial crisis, while UBS did.
ECB President Christine Lagarde said the banks ‘are in a completely different position from 2008’ during the financial crisis, partly because of stricter government regulation.
The Swiss bank has been pushing to raise money from investors and roll out a new strategy to overcome an array of troubles, including bad bets on hedge funds, repeated shake-ups of its top management and a spying scandal involving UBS.
While under Swiss rules, UBS would typically have to consult shareholders over six weeks, but could use emergency measures to skip the consultation period and a shareholder vote, the FT said, citing unnamed sources.
Members of the Swiss government, including President Alain Berset, were reportedly filmed heading into the finance ministry in Bern early on Sunday.
The government did not respond when contacted on Sunday.
David Benamou, chief investment officer of Paris-based Axiom Alternative Investments, said: ‘The Credit Suisse management, even if forced to do so by the authorities, would only choose (a UBS takeover) if they have no other solution.’
The Swiss Bank Employees Association said there was ‘a great deal at stake’ for the 17,000 Credit Suisse staff, ‘and therefore also for our economy’.
‘In addition, tens of thousands of jobs outside of the banking industry would potentially be at risk,’ it added, calling for a task force to be established to manage the situation.
Like UBS, Credit Suisse is one of 30 banks around the world deemed to be Global Systemically Important Banks – of such importance to the international banking system that they are considered too big to fail.
But the market movement seemed to suggest the bank was being perceived as a weak link in the chain.
‘We are now awaiting a definitive and structural solution to the problems of this bank,’ French Finance Minister Bruno Le Maire told Le Parisien newspaper.
Amid fears of contagion after the collapse of two US banks, Credit Suisse’s share price plunged by more than 30 percent on Wednesday to a new record low of 1.55 Swiss francs. That saw the SNB step in overnight with a $54-billion lifeline to shore up investor confidence.
Analysts at American investment bank JPMorgan still said the loan from the SNB would not be enough to soothe investor concerns and ‘status quo was no longer an option’.
Despite shares rising 35% on Thursday, they said a takeover was still the mostly likely outcome for Credit Suisse – predicting correctly that UBS would look to snap up the bank.
In 2022, Credit Suisse suffered a net loss of $7.9bn and expects a ‘substantial’ pre-tax loss this year.
The turmoil follows investor concerns over the accuracy of the Credit Suisse’s financial reporting and the bank’s relationship with investors, as well as a string of scandals dating back several years.
The bank slashed staff numbers by 9,000 in October last year, seven months after bringing in new CEO Ulrich Körner to replace António Horta-Osório, who resigned after it was revealed he had breached Covid rules.
That summer, Credit Suisse was found guilty of failing to prevent money laundering by a Bulgarian cocaine trafficking gang.
The extent of the bank’s problems were apparent by February 2023, when it reported its largest annual loss since 2008 – $1.5bn down in the last quarter of the year.
On 28 February it was ruled Credit Suisse had ‘seriously breached’ its risk management obligations in its relationship with disgraced lender Lex Greensill and companies.
Last week, this came to a head when Credit Suisse acknowledged ‘material weakness’ in its financial reporting as it scrapped bonuses for top execs.
The Saudi National Bank – Credit Suisse’s top shareholder – then said it would no longer buy shares due to regulatory issues, tanking share prices a further 25%.
As recently as October, the Saudi bank had looked to capitalise on cheap shares – 55% down following a string of scandals and changes at the top – which they had deemed ‘a steal’ at the time.
On Thursday, Credit Suisse announced it would borrow up to $53.68bn from the Swiss National Bank, hours after it was offered a loan to shore up liquidity.
JPMorgan predicted that the bank would be taken over – most likely by UBS – despite the lifeline from the Swiss National Bank.
