The takeover of Credit Suisse by larger rival UBS leaves Switzerland with only one globally systemically important bank. The Swiss National Bank is providing 200 billion francs in assistance.

It was just over a year ago when UBS CEO Ralph Hamers indicated that his bank was not profiting from the woes facing Credit Suisse saying «it’s never a good thing when a competitor has problems». Now, Hamers is the CEO of a new entity combining both banks.

UBS has announced it will take over Credit Suisse with the support of the Swiss government, the Swiss Financial Market Supervisory Authority (Finma), and the Swiss National Bank (SNB), the SNB announced Sunday evening. 

Solid Solution

UBS Chairman Colm Kelleher said in a statement the «acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction that will preserve the value left in the business while limiting our downside exposure.»

Switzerland's largest bank agreed to buy Credit Suisse after doubling its offer to over three billion dollars, with Swiss authorities aiming to change the law to avoid a shareholder vote for the deal to proceed. Finance Minister Karin Keller-Sutter called the deal a «solid solution» at a Sunday evening media briefing in Bern.

UBS will pay 50 centimes per share for Credit Suisse with its shares after the Credit Suisse board of directors earlier rejected a 25-centime offer worth about one billion dollars.

Financial Stability

The takeover by UBS of troubled rival Credit Suisse secures financial stability that will «protect the Swiss economy in this exceptional situation» the SNB said. Both UBS and Credit Suisse will have unrestricted access to the resources of the SNB through which they can obtain liquidity.

Based on an emergency ordinance from the Swiss federal council, both banks have access to liquidity assistance via privileged creditor status in bankruptcy total of up to 100 billion Swiss francs ($108 billion).

In addition, the SNB can provide Credit Suisse with liquidity assistance of up to 100 billion francs through a federally backed-default guarantee. The loan is based on the Public Liquidity Backstop (PLB), decided by the federal council last year.

The SNB said the liquidity provisions will ensure both UBS and Credit Suisse have access to the funds they need. The central bank also said it will continue to work closely with both Finma and the federal government.

Default Guarantee

To strengthen financial market stability until the completion of the takeover and reduce costs for the Swiss economy, the Swiss government is granting UBS a guarantee of 9 billion francs ($9.7 billion). This is to cover potential losses from certain assets UBS is taking over as part of the transaction, should any future losses exceed a certain threshold, according to a statement Sunday.

The Federal Council also created a legal basis for a bankruptcy privilege so that the SNB can grant Credit Suisse additional liquidity support, giving the SNB the necessary security to be able to provide Credit Suisse with substantial additional liquidity.

According to Finma, the extraordinary government support triggers a full write-down of the nominal value of all Credit Suisse's AT1 bonds, amounting to about 16 billion francs, increasing its core capital.