The merger of two Swiss banks will lead to layoffs in Switzerland and the US.
UBS’s acquisition of Credit Suisse for more than $3 billion marks the end of an era in Switzerland, as the rivalry between the two banks came to a close on Sunday.
Repeated scandals and business losses at Credit Suisse in recent years spooked investors and clients, prompting clients to withdraw $10 billion one day last week, according to the Wall Street Journal.
DO NOT MISS: UBS acquires Credit Suisse for more than $3 billion
The deal was closed on Sunday, before Asian stock markets opened, as announced by Swiss President Alain Berse. Rivals had been reluctant to merge.
One sign that the deal was government-driven was that government officials took center stage at the press conference announcing the transaction. UBS Chairman Colm Kelleher and Credit Suisse Chairman Axel Lehman sat at the other end of the table.
“With the acquisition of Credit Suisse by UBS, a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation,” the Swiss National Bank said in a statement.
‘many thousands’
The agreement comes after three days of intense talks, in which UBS and Credit Suisse were very reluctant to marry. The former felt that the bank was doing well and did not need to be saddled with a deal that would only bring trouble. The latter felt that his restructuring plan would be enough to recover. But the Swiss authorities feared that the confidence crisis suffered by Credit Suisse would intensify and, above all, that it would spread to other banks.
Kelleher said UBS’s plan includes a contraction of Credit Suisse’s investment banking business. This strategy would help it fit in with UBS’s “conservative risk culture,” he said.
He said it was unknown at this time how many job cuts would be required.
The acquisition “supports financial stability in Switzerland and creates significant sustainable value for UBS shareholders,” Kelleher said.
Swiss officials worked on the deal to avoid a riskier outcome.
“This is a commercial solution and not a bailout,” said Karin Keller-Sutter, Switzerland’s finance minister. “Bankruptcy would have been the biggest risk.”
Since both Credit Suisse and UBS have operations in the US, the Federal Reserve had worked with the Swiss National Bank, its counterpart, on the merger.
“We welcome the announcements from 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,” said a statement from Treasury Secretary Janet Yellen and the Federal Reserve Chairman on Sunday. , Jerome Powell.
Keller-Sutter said she had talks with Yellen and British Foreign Minister Jeremy Hunt. Keller-Sutter said “many thousands” of Credit Suisse employees will be affected, and pointed to future layoffs.
Credit Suisse already planned, last October, to lay off 9,000 people. The bank had 50,000 employees as of the end of 2022, with 16,000 employees in Switzerland. His balance sheet was half a billion dollars.
Investment banking units are located in London and Singapore. In the US, Credit Suisse’s investment banking offices are located in Boston, Chicago, Houston, Los Angeles, New York and San Francisco.
Credit Suisse has an operations division near Raleigh, NC, with thousands of employees working in its technology division in Poland and India.
UBS’s workforce is much larger, with 74,000 employees worldwide. UBS’s balance sheet is $1.1 trillion in total assets.
Emergency backup for USB
Once the deal is complete, UBS’s balance sheet size will be larger than that of its competitors Deutsche Bank and Goldman Sachs.
The merger between UBS and Credit Suisse is also the first major global banking deal since the 2008 financial crisis that devastated the global economy and nearly brought down the financial system.
It comes after a crisis of confidence in banks, sparked by the sudden collapse of California-based Silicon Valley Bank on March 10 after interest rate bets went awry. The confidence crisis crossed the Atlantic and hit Credit Suisse, a scandal-weakened bank that has been trying to turn around since last October.
Swiss authorities provided a loan of almost $54 billion to the bank on March 15, but this was not enough to reassure investors, who continued to sell Credit Suisse shares until the point where the bank’s market value fell to $7.3 billion in March. 17.
The transaction, which is a stock deal, is valued at 3 billion Swiss francs, equivalent to 3.24 billion dollars. Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they own, equivalent to CHF 0.76/share.
The Swiss government has also responded favorably to a request by UBS for a financial guarantee in case Credit Suisse’s legal troubles return in the form of fines or lawsuits. It will provide $9 billion of backing to the bank for the risks it is taking.
“In order to reduce any risk to UBS, the federal government also provides UBS with a guarantee in the amount of CHF 9 billion to bear potential losses arising from certain assets that UBS assumes as part of the transaction, in the event that the future losses exceed a certain threshold,” he said in a news release.
The Swiss National Bank will also provide more than $100 billion of liquidity to UBS, to help facilitate the deal.
