Major central banks around the world acted on Sunday to prevent a banking crisis from spreading, following Swiss authorities’ success in persuading UBS Group AG to buy its rival Credit Suisse Group AG in a landmark deal.
UBS will acquire the 167-year-old Credit Suisse for 3 billion Swiss francs ($3.23 billion) and take on up to $5.4 billion in losses, backed by a substantial Swiss government guarantee. The deal is expected to close by the end of 2023.
In response to the announcement, the U.S. Federal Reserve, European Central Bank (ECB), and other central banks issued statements to reassure markets shaken by the recent banking crisis sparked by the collapse of two U.S. regional banks earlier this month.
Market reactions were mixed: S&P 500 and Nasdaq futures were up 0.4%, while New Zealand and Australian shares opened lower. The U.S. dollar weakened against the British pound and the euro but strengthened against the yen.
UBS Chair Colm Kelleher described it as a “historic day in Switzerland,” noting that while UBS did not initiate discussions, they view the acquisition as financially attractive for their shareholders.
UBS CEO Ralph Hamers acknowledged that there are still many unresolved details and apologized for any unanswered questions.
In a coordinated global response, the Fed collaborated with central banks in Canada, England, Japan, the EU, and Switzerland to enhance market liquidity.
The ECB committed to supporting eurozone banks with loans if necessary, describing the Swiss rescue of Credit Suisse as “instrumental” in restoring market stability.
U.S. officials, including Fed Chair Jerome Powell and Treasury Secretary Janet Yellen, welcomed the Swiss authorities’ decision, while the Bank of England also expressed approval.
Lloyd Blankfein, former CEO of Goldman Sachs, commented that the current environment promotes cautious investing and lending, but emphasized that the banking system is well-capitalized and more regulated than during previous crises.
The Swiss banking merger followed global efforts to stabilize the sector after the recent collapse of Silicon Valley Bank and Signature Bank in the U.S.
While some investors welcomed these measures, they remain cautious, with concerns persisting over potential hidden issues in the market.
In the U.S., bank stocks are still under pressure despite large banks depositing $30 billion into First Republic Bank, which saw its credit rating downgraded further into junk status by S&P Global.
A U.S. official noted that U.S. bank deposits have stabilized, with outflows slowing or reversing, and clarified that Credit Suisse’s issues are unrelated to recent deposit runs on U.S. banks.
Meanwhile, the U.S. Federal Deposit Insurance Corp (FDIC) is relaunching efforts to sell Silicon Valley Bank, considering a potential breakup of the lender.
The euro, pound, and Australian dollar each rose about 0.4% against the U.S. dollar, suggesting a slight increase in market risk appetite.
UBS plans to wind down Credit Suisse’s investment bank, which has a global workforce, and anticipates annual cost savings of $7 billion by 2027.
The deal includes 100 billion Swiss francs ($108 billion) in liquidity assistance from the Swiss central bank for UBS and Credit Suisse.
Credit Suisse shareholders will receive one UBS share for every 22.48 shares they hold, valued at 0.76 Swiss francs per share, for a total consideration of 3 billion francs.
Credit Suisse shares lost a quarter of their value last week, and the bank had to borrow $54 billion from the central bank to regain stability amid multiple scandals.
Under the terms of the UBS acquisition, certain Credit Suisse bondholders face significant losses, with bonds valued at $17 billion being written down to zero, causing discontent among investors who believed they would be better protected than shareholders.
Central banks’ swift intervention and the merger of UBS and Credit Suisse reflect a concerted effort to prevent a broader financial crisis and restore confidence in the global banking sector.
