News & Analysis

After 167 years of business, Credit Suisse will be taken over by UBS in a deal aimed at quieting ongoing panic in the financial markets in the wake of Silicon Valley Bank's collapse.

After a weekend of frantic negotiations between the banks and Swiss regulators, UBS agreed to buy its smaller peer for 3 billion Swiss francs (about $3.2 billion). The all-share deal will see UBS pay the equivalent of 0.76 francs per share, a steep discount to Credit Suisse's closing price March 17 of 1.86 francs per share.

The agreement comes only a few days after the Swiss National Bank provided an emergency 50 billion franc credit line to stem Credit Suisse's declining share price after the bank revealed a significant annual loss for 2022.

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

Credit Suisse's situation was exacerbated by the collapse of SVB, which ignited fears of contagion in the financial markets. Like SVB, Credit Suisse was found to be lacking proper risk management procedures; the bank's annual report for 2022 stated that "management did not design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements in its financial statements."

But the Swiss institution's problems had already been mounting long before SVB's failure as it stumbled from crisis to crisis over the years, eroding investor and customer confidence.

In 2020, then-CEO Tidjane Thiam was ousted after the bank admitted to hiring private detectives to spy on former staff. A year later, scandal hit again when VC-backed supply chain finance company Greensill Capital declared insolvency. Credit Suisse had invested heavily in Greensill Capital's funds, which left clients with significant losses after the latter failed. The bank faced allegations of mismanagement and conflicts of interest and Swiss regulator FINMA concluded that it had "seriously breached its supervisory obligations."

A few weeks after that, the implosion of US hedge fund Archegos Capital Management resulted in $5.5 billion of losses for Credit Suisse's investment bank after it again failed to properly manage risk. Credit Suisse was also hit with fines in 2021 and 2022 relating to bribery and failure to prevent money laundering.

Last year, Credit Suisse announced a widespread restructuring plan aimed at building a stronger, more stable bank which included plans to spin off its investment bank under the name CS First Boston and increase its capital allocation to its wealth management and asset management arms, the latter of which houses its private equity activities.

But in light of UBS' takeover, it's unclear how much of this restructuring will happen. UBS already intends to manage down the investment bank so the plans to separate it may still materialize.

Reports from earlier this year suggested that Apollo Global Management was in talks to invest $750 million to support CS First Boston. Apollo also agreed to buy a significant part of the bank's securitized products group in November.

The UBS rescue appears to have reassured some investors as banking stocks in the US and Europe are on the rise. But while regulators applaud the deal—the second European banking takeover this month after HSBC's acquisition of SVB's UK arm—it's unlikely to quell banking concerns for long, as investors fear more takeovers may be on the horizon.

Featured image by Fabrice Coffrini/Getty Images