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Major Swiss bank UBS takes over ailing competitor Credit Suisse

The future of Credit Suisse has been decided: the badly hit major bank will be taken over by its larger local rival UBS.

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Major Swiss bank UBS takes over ailing competitor Credit Suisse

The future of Credit Suisse has been decided: the badly hit major bank will be taken over by its larger local rival UBS. This was announced by the Swiss Federal Council and representatives of the two institutes and the supervisory authorities at a press conference on Sunday evening. The Swiss National Bank (SNB) is supporting the takeover with liquidity assistance of CHF 100 billion (around EUR 101 billion) to both banks.

Credit Suisse has lost the confidence of the financial markets, said Swiss President Alain Berset at a press conference scheduled at short notice. The takeover by UBS is the best solution to restore trust.

UBS will take over the rival for three billion francs. UBS announced that the purchase price would be paid in treasury shares. The merged bank will manage more than $3.4 trillion in assets. "This acquisition is attractive for UBS shareholders, but one thing is clear - as far as Credit Suisse is concerned, this is an emergency rescue," said Colm Kelleher, Chairman of the Board of Directors, who also spoke of a "huge opportunity" for UBS.

A takeover of the second largest Swiss bank Credit Suisse by UBS is the most significant banking merger in Europe since the financial crisis 15 years ago. This was preceded by a marathon of negotiations that lasted the whole weekend, in which the parties involved from the two banks as well as top representatives from politics and the supervisory authorities took part. The two banks had been pushed by politicians and the supervisory authorities to merge.

The Swiss government in Bern was under considerable pressure to stabilize the situation and support Credit Suisse. Because the money house is one of the world's largest asset managers and is one of the 30 globally systemically important banks whose failure would shake the international financial system. According to media reports, the US authorities were also involved in the talks on the emergency takeover. Both banks are very active there.

"With the takeover of Credit Suisse by UBS, a solution was found to ensure financial stability and protect the Swiss economy in this extraordinary situation," the SNB said in a statement. This contributes to the stability of the entire financial sector.

Finance Minister Karin Keller-Suter said the federal government had given a guarantee of nine billion Swiss francs to absorb risks at Credit Suisse. SNB President Thomas Jordan emphasized that reputation is central to the Swiss economy.

The Swiss Financial Market Supervisory Authority (Finma) welcomed the takeover solution and the measures taken by the federal government and the Swiss National Bank. The takeover will result in a larger bank. The existing regulation provides for higher capital cushions for this. According to a statement, FINMA will grant appropriate transitional periods for their establishment.

At Credit Suisse there was a risk of insolvency, even if the bank was still solvent. "The authorities had to take measures to avert serious damage to the Swiss and international financial market," Finma said.

Credit Suisse has come under further pressure following a series of previous scandals, including the closure of two US banks, Silicon Valley Bank and Signature Bank, which had worried the financial sector. Statements by Credit Suisse's largest shareholder, the Saudi National Bank from Saudi Arabia, that it did not want to increase investments in the second-largest Swiss bank sent the price plummeting.

Credit Suisse then received a loan commitment from the Swiss National Bank in the amount of CHF 50 billion (almost EUR 51 billion), but was only able to temporarily stop the downward trend in the share price.

The bank reported an annual loss of CHF 7.3 billion (EUR 7.4 billion) for the past financial year. In the fourth quarter of 2022, CS customers had withdrawn immense sums – the bank recorded a net cash outflow of 110 billion francs.

In contrast, UBS had made a profit of 7.6 billion dollars (currently 7.07 billion euros) in 2022. Credit Suisse's stock market value has fallen by more than two-thirds within twelve months - most recently to just EUR 7.46 billion. UBS, on the other hand, was worth the equivalent of around 60.8 billion euros.

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