Swiss market watchdog Finma approved the takeover, which came after frantic talks between bank bosses and ministers desperate to secure a deal before nervous investors return to trading on Monday morning.
UBS, a Switzerland-based international investment bank, will pay 3 billion francs (£2.66bn) to acquire its smaller rival – far below the price that would have been expected in less urgent circumstances.
Negotiations were being held in the wake of the biggest banking failures since the 2008 financial crash, and with one of the world’s leading investment banks circling the drain, officials were prepared to bypass regulations such as shareholder approval in order to force a deal through.
Sources familiar with the talks told the Financial Times there was limited contact between the two banks, with the terms heavily influenced by the Swiss National Bank (SNB) and Finma. Holdings will be exchanged at a rate of 1 UBS share per 22.48 Credit Suisse shares.
Swiss finance minister Karin Keller-Sutter said the collapse of Credit Suisse “would have had huge collateral damage” internationally. “I was in contact with my colleagues from the UK and USA,” 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 moved to “support financial stability”. British chancellor Jeremy Hunt and the Bank of England likewise hailed the deal.
Christine Lagarde, chair of the European Central Bank, said Switzerland’s actions were “instrumental for restoring orderly market conditions”. Experts have pointed to early central bank involvement as an encouraging difference between the recent financial shocks and those of 2008.
The 167-year-old Credit Suisse was brought to the brink of financial calamity this week despite a £45bn emergency loan from Switzerland’s central bank. Its shares plummeted to a record low after its largest investor, the Saudi National Bank, said it would not invest any more money into the bank to avoid tripping regulations that would kick in if its stake rose about 10 per cent.
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 to the global finance structure. Its troubles are expected by industry experts to have a knock-on effect for world banking.
On Friday, shares dropped 8 per cent to close at 1.86 francs (£1.65) on the Swiss exchange. The stock has seen a long downward slide, having traded at more than 80 francs in 2007.
The bank’s decline became all but terminal after bosses reported on Tuesday that they had identified “material weaknesses” that allowed for potential inaccuracies in its financial reporting as of the end of last year.
That fanned fears that Credit Suisse would be the next domino to fall after the collapse of two large US banks last week that spurred a frantic, broad response from the US government to prevent any further panics.
Credit Suisse has $1.4 trillion (£1 trillion) in assets under management and has significant trading desks around the world. It caters to the rich and wealthy through its wealth management business and is a major adviser for global companies in mergers and acquisitions.
It is one of the largest investment banking employers in the City of London, employing around 5,000 staff. It was unclear what the buyout will mean for the bank’s global workforce, though sources earlier in the weekend told Reuters that UBS may be forced to cut 10,000 jobs.
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