Credit Suisse has seen its worst decline in the past week, after the collapse of two US banks. Although Credit Suisse has been facing problems in the past, the issues seem to multiply, and the bank is in desperate need of a savior. According to reports, rival bank UBS AG (UBS) has offered more than two billion and the deal has been pushed through with the help of the Swiss government. The bank has global operations, and it was imperative that a decision had to be taken as Credit Suisse faces a major crisis of confidence.
People with knowledge of the matter, who had preferred not to be identified as the deal had not been made public, said that it would be an all-share deal. On Friday close, Credit Suisse was valued at about 7.4 billion francs which is equivalent to $8 billion. However, rival bank UBS AG will pay a fraction of its price and the deal will close at more than $2 billion.
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The Financial Times, which was the first to report the deal said UBS will get a $100 billion liquidity line from the Swiss National Bank, as part of the deal. The FT also reported that the country’s authorities would change Swiss laws to bypass a shareholder vote, so that an agreement could be reached.
The Swiss central bank provided a liquidity backstop mid-week. However, the crisis continued through the week and there were weekend talks. Earlier on Sunday UBS had offered more than a billion but Credit Suisse pushed back against the offer and the buyout was reportedly increased to more than two billion.
Credit Suisse, a 167-year-old bank, survived the 2008 financial crisis but faced many challenges in the past few years including blowups and scandals. Leadership changes and legal issues also added to the turmoil. When news of its financial health spread, clients withdrew over $100 billion of assets in ninety days. Outflows also continued despite a recent 4-billion-franc capital raise.
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U.S. authorities and international counterparts including Britain have worked with Swiss counterparts to broker the deal. The deal is of significant importance as Credit Suisse has global operations. The impact of the deal will be seen when markets open on Monday.
According to a report in Reuters, the Swiss central bank said, “With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation.”
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