Credit Suisse is to merge with Swiss life and general insurance company Winterthur to form one of the world's largest financial services groups, with a market capitalisation of SFr50bn (pounds 21bn).
The link is the latest move in a wave of consolidation expected to sweep Europe's financial sector in the run-up to monetary union.
The bank, Switzerland's second-largest, announced the proposed merger as it brought forward half-year profits showing a 70 per cent jump in profits to SFr1.4bn (pounds 579m). The sharp rise, which followed a similar improvement last week from Union Bank of Switzerland, was attributed to buoyant financial markets, domestic restructuring and the weakness of the Swiss currency.
Credit Suisse has been looking for a partner since its proposals to merge with UBS were rejected last year. Under the terms of the deal Winterthur will remain autonomous and retain its own name.
Speculation about the future of Winterthur increased over the weekend when Martin Ebner, one of Switzerland's leading shareholder activists, said he planned a takeover of the company in which he had built up a 30 per cent stake through BZ Bank. He offered a takeover by Credit Suisse as an alternative and said yesterday's news was a "welcome solution at a very fair price".
The deal was also described by Winterthur chairman Peter Spaelti as "totally fair". He insisted the transaction was a merger of the two companies not a takeover, describing the planned share swap as convenient for tax reasons.
The support of Mr Ebner is important because 98 per cent of the insurer's shareholders need to approve the deal. Support was also forthcoming from Swiss Reinsurance, which holds about 5 per cent of Winterthur's shares.
Mr Ebner also holds around a quarter of UBS's shares and has been locked in a legal battle with the bank for the past three years over the introduction of a new share structure.
Following the merger, Mr Ebner is expected to control around 7 per cent of the new group's shares, depending on whether he accepts Credit Suisse shares for all his holding.
The merger would establish the group as one of the world's top providers of banking and insurance services. The group would manage funds of about SFr700bn, have about 15 million clients and is expected to make profits in 1998 of SFr3.49bn.
If the deal is approved, Credit Suisse would make Winterthur shareholders an offer under which 7.3 Winterthur shares would be exchanged for one Credit Suisse share.
Approval of the deal could hinge on the reaction of the US regulatory authorities, according to Salomon Brothers' banking analysts John Leonard. "One uncertainly may relate to Winterthur's US business - perhaps 15 per cent of the total - as US regulators are unfriendly to the principle of bancassurance," he said.
European Union officials are also expected to take a close look at the deal, with sources saying yesterday the merger appeared sufficiently large to require examination.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies