The Merger and its Background
In a historic announcement on Sunday, March 19, 2023, UBS agreed to acquire its rival Credit Suisse for 3 billion Swiss francs ($3.23 billion) in stock and also assumed up to 5 billion francs ($5.4 billion) in losses. This merger was orchestrated by Swiss authorities in order to avoid further turmoil in the global banking market, and marks the end of an era for Credit Suisse, one of the oldest and most prestigious banks in Switzerland.
Reasons for the Merger
Credit Suisse has been struggling with a series of scandals, losses, and regulatory fines for several years, which eroded its capital base and reputation. The bank was hit hard by the collapse of Archegos Capital Management in 2021, which resulted in a $5.5 billion loss. Credit Suisse also faced legal troubles over its involvement in several scandals including the 1MDB corruption scandal in Malaysia, the Mozambique debt scandal, and the Greensill Capital debacle. The final blow came when SVB Financial Group, one of Credit Suisse’s largest clients, filed for bankruptcy on March 16, 2023. As a result, Credit Suisse faced a potential loss of up to $10 billion, which threatened to wipe out its remaining capital.
Terms of the Merger
Under the merger agreement, all shareholders of Credit Suisse will receive one share in UBS for 22.48 shares in Credit Suisse as merger consideration, reflecting a merger consideration of CHF 3 billion for all shares in Credit Suisse. The transaction is subject to customary closing conditions, and both parties are confident that all conditions can be met, with the merger expected to be consummated by the end of 2023. The Swiss National Bank will grant Credit Suisse access to facilities that provide substantial additional liquidity until the completion of the merger. UBS is expected to appoint key personnel to Credit Suisse as soon as legally possible to facilitate a seamless integration, and Credit Suisse will continue to operate in the ordinary course of business and implement its restructuring measures in collaboration with UBS. The merger agreement was made possible by an emergency ordinance issued by the Swiss Federal Council, which allowed the merger to be implemented without approval of shareholders in order to restore confidence in the stability of the Swiss economy and banking system.
Potential Consequences of the Merger
The merger between UBS and Credit Suisse will create a banking giant with combined assets of over $4 trillion, making it one of the largest banks in the world. The merged entity will have a dominant position in wealth management, investment banking, and private banking, as well as significant presence in retail banking, asset management, and corporate banking. The deal will also generate significant synergies and cost savings for both banks as they can eliminate overlapping functions, rationalize their branch networks, and leverage their complementary strengths. UBS expects to achieve annual pre-tax synergies of around CHF 5 billion ($5.4 billion) by 2026. However, the deal also poses some challenges and risks for both banks, as they have to integrate two different cultures, systems, and processes, while maintaining their client relationships, regulatory compliance, and operational resilience. The deal may also face antitrust scrutiny from regulators in Switzerland and other jurisdictions where both banks operate, as well as opposition from some stakeholders who may lose out from the merger.
The merger between UBS and Credit Suisse marks the end of an era for Credit Suisse, which has struggled for years with scandals and losses. While the merger creates a banking giant with combined assets of over $4 trillion, it also poses challenges and risks for both banks.
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Keywords: UBS, Credit Suisse, merger, banking industry, scandals, losses, regulatory fines, Archegos Capital Management, 1MDB corruption scandal, Mozambique debt scandal, Greensill Capital, SVB Financial Group, bankruptcy, shareholders, assets, wealth management, investment banking, private banking, retail banking, asset management, corporate banking, synergies, cost savings, regulatory compliance, antitrust scrutiny.