UBS Group AG, Switzerland's largest banking group, has agreed to acquire the crisis-hit Credit Suisse Group AG in a historic, government-brokered deal, news agency Bloomberg has reported.
UBS is paying more than $2 billion to buy its rival, the report said, citing sources who are privy to the matter. The all-share deal has priced Credit Suisse at around one-fourth of its closing price at the end of the trading session on March 17, when the lender valued at about $8 billion.
The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address a massive rout in Credit Suisse stock and bonds over the past week following the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank failed to end a market drama that threatened to send clients or counterparties fleeing, with potential ramifications for the broader industry.
US authorities have been working with their Swiss counterparts because both lenders have operations in the US and are considered systemically important in Switzerland, Bloomberg reported earlier. Authorities sought an agreement before markets opened again in Asia.
A day earlier, news agency Reuters learnt from sources that UBS had sought aa $6 billion guarantee from the Swiss government to cover the risks involved in the takeover of Credit Suisse.
The government guarantees UBS was seeking would cover the cost of winding down parts of Credit Suisse and potential litigation charges, the sources reportedly said.
The frenzied weekend negotiations come after a brutal week for banking stocks and efforts in Europe and the US to shore up the sector. US President Joe Biden's administration moved to backstop consumer deposits while the Swiss central bank lent billions to Credit Suisse to stabilize its shaky balance sheet.
The 167-year-old Credit Suisse is the biggest name ensnared in the turmoil unleashed by the collapse of US lenders Silicon Valley Bank and Signature Bank over the past week, spurring a rout in banking stocks and prompting authorities to rush out extraordinary measures to keep banks afloat.
Credit Suisse shares lost a quarter of their value in the last week. It was forced to tap $54 billion in central bank funding as it tries to recover from a string of scandals that have undermined the confidence of investors and clients.
The company ranks among the world's largest wealth managers and is considered one of 30 global systemically important banks whose failure would ripple throughout the entire financial system.
The banking sector's fundamentals are stronger and the global systemic linkages are weaker than during the 2008 global financial crisis, Goldman analyst Lotfi Karoui wrote in a late March 17 note to clients. That limits the risk of a "potential vicious circle of counterparty credit losses," Karoui said.
"However, a more forceful policy response is likely needed to bring some stability," Karoui said. The bank said the lack of clarity on Credit Suisse's future will pressure the broader European banking sector.
While UBS has finalised the decision to acquire its Swiss rival, there were multiple reports, earlier, which suggested that a number of other lending entities were also looking to take over the stressed bank. Deutsche Bank was considering to buy some of its assets, Bloomberg had earlier reported. Rumours were also doing the rounds that BlackRock was interested in placing a bid, but the US financial giant had categorically denied it.
With Bloomberg & Reuters inputs