Credit Suisse, UBS deal: What you need to know

ZURICH –

UBS agreed to buy rival Swiss bank Credit Suisse for three billion Swiss francs (S$4.3 billion)

and agreed to assume up to US$5.4 billion (S$7.2 billion) in losses, in a shotgun merger engineered by the Swiss authorities to avoid further market-shaking turmoil in global banking.

Developments

• The deal includes 100 billion Swiss francs in liquidity assistance for UBS and Credit Suisse from the Swiss central bank.

• To enable UBS to take over Credit Suisse, the federal government is providing a loss guarantee of a maximum of nine billion Swiss francs for a clearly defined part of the portfolio, the government said.

• The European Central Bank said on Sunday that a Swiss rescue of Credit Suisse was “instrumental” for restoring calm in financial markets, but it remained ready to support euro zone banks with loans if needed.

• The Bank of England welcomed moves by the Swiss authorities to support financial stability after UBS agreed to purchase Credit Suisse on Sunday. The British central bank also said the United Kingdom’s banking system was well capitalised and funded. It said in a statement: “The UK banking system is well capitalised and funded, and remains safe and sound.”

• UBS chairman Colm Kelleher said the bank wants to keep Credit Suisse’s Swiss unit, speaking at a news conference announcing the merger between Switzerland’s two biggest banks on Sunday. “It is a fine asset that we are very determined to keep and hopefully service their customers and clients as efficiently as Credit Suisse has done,” Mr Kelleher said.

Market reaction

• Early traded prices of the euro suggest the single currency was rising on the back of the news. It was quoted at around US$1.07, up around 0.4 per cent on Monday.

What some observers are saying

Max Georgiou, analyst at Third Bridge, London:

“Today is one of the most significant days in European banking since 2008, with far-reaching repercussions for the industry. These events could alter the course of not only European banking but also the wealth management industry more generally.”

Octavio Marenzi, chief executive of Opimas, Vienna:

“Switzerland’s standing as a financial centre is shattered – the country will now be viewed as a financial banana republic. The Credit Suisse debacle will have serious ramifications for other Swiss financial institutions. A countrywide reputation for prudent financial management, sound regulatory oversight, and, frankly, for being somewhat dour and boring regarding investments, has been wiped away.” REUTERS