UBS Group AG (NYSE:UBS) will take over its embattled Swiss rival Credit Suisse Group AG (NYSE:CS) for US$3.25bn following crunch talks on Sunday aimed at stopping the stricken bank from triggering a wider international banking crisis.
The Swiss government said the deal, involving Switzerland's biggest bank taking over the second-largest, was vital to prevent irreparable economic turmoil spreading throughout the country and beyond.
The move was welcomed in Washington, Brussels and London as one that would support financial stability.
Under the terms of the deal, shareholders of Credit Suisse will receive 1 share in UBS for every 22.48 shares in Credit Suisse.
Around 16bn Swiss francs (SFr) of Credit Suisse’s additional Tier 1 capital bonds, which are designed to take losses when institutions run into trouble and to transfer the risk of a bank failure from taxpayers to investors, are being wiped out.
Until the agreement is finalised, the Swiss National Bank will grant Credit Suisse access to facilities that provide substantial additional liquidity.
The historic deal follows five days in which the Swiss establishment raced to end a deepening crisis at Credit Suisse that threatened to topple the bank.
An emergency SFr50bn (US$54bn) credit line provided by the Swiss National Bank on Wednesday failed to arrest a steep decline in the share price, which was exacerbated by wider market turmoil caused by the sudden collapse of California-based Silicon Valley Bank (SVB).
“On Friday the liquidity outflows and market volatility showed it was no longer possible to restore market confidence, and a swift and stabilising solution was absolutely necessary,” Swiss president Alain Berset said at a press conference in Bern on Sunday evening. “This solution was the takeover of Credit Suisse by UBS.”
“This is no bailout. This is a commercial solution,” said Swiss finance minister Karin Keller-Sutter.
“The bankruptcy would have had huge collateral damage on the Swiss financial market and with a risk of contagion internationally."
Axel Lehmann, chair of Credit Suisse, said: "Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome.”
UBS chair Colm Kelleher added: "We are committed to making this deal a great success.”
The merger is expected to be consummated by end of 2023 if possible.
The deal was warmly received internationally, with European Central Bank chief Christine Lagarde welcoming the "swift action".
US Fed Chair Jerome Powell and Treasury Secretary Janet Yellen said in a joint statement: "We welcome the announcements by the Swiss authorities today to support financial stability."
Britain too said the deal would "support financial stability".