The Swiss government has forced through the takeover of stricken bank Credit Suisse by rival UBS for almost $3.25bn (£2.65bn) – well below its market value – amid fears that a failure to protect depositors would trigger a new global banking crisis.
After a weekend of frantic talks, the Swiss government and the banking regulator brokered a deal once it became clear a $54bn loan to Credit Suisse from the Swiss central bank had failed to halt the precipitous slide in its share price.
“The takeover of Credit Suisse by UBS is the best solution” in the current situation, said the Swiss president, Alain Berset.
He said the takeover was made possible after the Swiss federal government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank agreed to support the deal.
An £8bn insurance scheme to protect UBS from losses was described by Karin Keller-Sutter, the Swiss finance minister, as “like a backstop and insurance that only comes into effect if certain losses occur”.
Private investors who supported Credit Suisse with $16bn of credit were also expected to be wiped out by the deal.
Coupled with last week’s collapse of Silicon Valley Bank, whose UK arm had to be taken over by HSBC for the nominal sum of £1, the crisis engulfing Credit Suisse had fuelled anxiety about contagion in the international banking system.
“It was indispensable that we acted quickly and find a solution as quickly as possible” given that Credit Suisse was a systemically important bank, said the Swiss National Bank president, Thomas Jordan.
The agreement of terms before markets open on Monday morning is particularly important because Credit Suisse, which employs 5,000 people in the UK, is categorised by the global Financial Stability Board as one of just 30 “systemically important” lenders in the global banking system.
The deal was welcomed by the Bank of England on Sunday night and in a statement it added: “The UK banking system is well capitalised and funded, and remains safe and sound.”
But in a sign of global unease, the Bank – along with the Federal Reserve, the European Central Bank, the Bank of Canada, the Bank of Japan and the Swiss National Bank – took coordinated steps to enhance the provision of liquidity.
The Swiss government brokered the UBS-Credit Suisse deal and will change the law to allow it to go ahead without a shareholder vote. UBS reportedly bid $1bn at first but this was rejected by the board of Credit Suisse.
The price tag is still well below its stock market value, even after it crumbled to just $8.6bn (£7bn), down 86% since February 2021, after a prolonged series of scandals, compliance problems and bad financial bets.
In 2014, the bank pleaded guilty to allowing US clients to evade their taxes, leading to a $2.6bn fine from the US government and New York financial regulators.
In 2020, Credit Suisse’s then chief executive, Tidjane Thiam, resigned after two corporate espionage scandals involving senior employees, while the bank also lost $5.5bn on the collapse of US hedge fund Archegos Capital a year later.
The storm of negative publicity worsened last year after the Guardian’s revelations, based on a leak, that fraudsters, criminals and corrupt politicians had stored £80bn with the Zürich-based lender.
Customers began withdrawing billions of pounds from the bank last year in response to rumours about its financial health, leading to the bank’s worst full-year loss since the 2008 banking crisis.
In tandem with the failure of Silicon Valley Bank earlier this month, Credit Suisse’s travails have stoked fears that the international banking system could once again fall prey to the contagion seen in 2008, with ramifications for the wider global economy.
The economist Nouriel Roubini, known as Dr Doom after being credited with predicting the 2008 financial crisis, said that any potential failure by Credit Suisse could prove to be a “Lehman moment”, a reference to the collapse of Lehman Brothers in September 2008, widely seen as the proximate cause of the crash.