UBS and Credit Suisse Entere into Merger Agreement

UBS and Credit Suisse have signed a merger agreement on Sunday (March 19) following the approval of the Swiss Federal Department of Finance, the Swiss National Bank and the Swiss Financial Market Supervisory Authority FINMA (FINMA). The transaction is expected to close by the end of 2023 if possible.

Until consummation of the merger, Credit Suisse will continue to conduct its business in the ordinary course and implement its restructuring measures in collaboration with UBS.

Under the merger agreement, shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse as merger consideration, and UBS will be the surviving entity upon closing of the merger transaction. UBS will pay CHF 3 billion and assume up to $5.4 billion in losses in the deal.

The transaction has official support. According to the press released by FINMA on Saturday, the extraordinary government support will trigger a complete write-down of the nominal value of all AT1 shares of Credit Suisse in the amount of around CHF 16 billion, and thus an increase in core capital.

To ensure that all obligations can continue to be met at all times throughout the transaction, further liquidity assistance will be assured. The liquidity provided by the Swiss National Bank (SNB) will include a loan covered by a federal guarantee. The Swiss Confederation will also provide guarantees for potential losses of certain assets that UBS will acquire as part of the transaction, if these losses exceed a specific threshold.

“Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome,” said Axel P. Lehmann, Chairman of the Board of Directors of Credit Suisse.

This comes after Credit Suisse's share price fell by about 30% last Wednesday, hit hard by a series of banking collapses, including the failure of Silicon Valley Bank​. To contain the risk of contagion to Swiss financial markets from the problems of certain banks, SNB agreed to provide Credit Suisse up to CHF 50 billion​ to pre-emptively strengthen liquidity.

In February, Credit Suisse announced a yearly loss of CHF 7.3 billion for 2022, which is its biggest loss since the 2008 crisis. On March 14, the bank also revealed "material weaknesses" in its control and reporting processes over the past two years in a delayed report lodged in the United States.