UBS to buy Credit Suisse in historic deal to contain the spread of the crisis

One source previously said 10,000 jobs may have to be cut if the two banks combined. Picture: Gaetan Bally/AP/Keystone

UBS agreed to buy Credit Suisse in a historic, government-brokered deal aimed at containing a crisis of confidence that threatened to spread across global financial markets.

The Swiss bank is paying more than $2bn (€1.8bn) for its rival, according to people with knowledge of the matter. It will be an all share deal and priced at a fraction of Credit Suisse’s price at the close on Friday, when the bank was valued at about 7.4bn francs (€7.4bn). 

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.

The takeover of the 166 year-old lender marks a historic event for the nation and global finance. The former Schweizerische Kreditanstalt was founded by industrialist Alfred Escher in 1856 to finance the build-out of the mountainous nation’s railway network. It had grown into global powerhouse symbolizing Switzerland’s role as a global financial center, before struggling to adapt to a changed banking landscape after the financial crisis.

A person with knowledge of the talks earlier told Reuters that UBS sought $6bn from the Swiss government as part of a purchase. The guarantees would cover the cost of winding down parts of Credit Suisse and potential litigation charges.

One source previously said 10,000 jobs may have to be cut if the two banks combined.

Credit Suisse shares lost a quarter of their value last week. The bank was forced to tap $54bn in central bank funding as it tries to recover from scandals that have undermined the confidence of investors and clients.

While Credit Suisse avoided a bailout during the financial crisis, it has been hammered over recent years by a series of blowups, leadership changes and legal issues. 

- Bloomberg and Reuters