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Thursday, June 1, 2023

UBS Agrees to Buy Credit Suisse for $3.25 Billion

After a weekend of frantic talks, the Swiss government and banking regulator came to an agreement

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SWITZERLAND: The Swiss government forced rival UBS to take over ailing bank Credit Suisse for nearly $3.25 billion (£2.65 billion), far below its market value, amid worries that failure to protect depositors would spark a new global banking crisis.

After a weekend of frantic talks, the Swiss government and banking regulator came to an agreement. This was done because it was clear that a $54 billion loan from the Swiss central bank to Credit Suisse had not stopped the share price of the company from falling.

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“The takeover of Credit Suisse by UBS is the best solution in the present situation,” according to Alain Berset, the Swiss president.

He stated that the takeover was made feasible by the agreements of the Swiss federal government, the Swiss Financial Market Supervisory Authority (FINMA), and the Swiss National Bank.

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An £8bn insurance scheme to protect UBS from losses was described by Karin Keller-Sutter, the Swiss finance minister, as “like a backstop and insurance that only comes into effect if certain losses occur”.

It was also thought that the deal would wipe out private investors who had given Credit Suisse $16 billion in credit. Coupled with the failure of Silicon Valley Bank last week, whose UK branch had to be taken over by HSBC for the nominal sum of £1, the Credit Suisse crisis had fueled fears of contagion in the international banking system.

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But in response to growing unease around the world, the Bank, the Federal Reserve, the European Central Bank, the Bank of Canada, the Bank of Japan, and the Swiss National Bank all worked together to improve liquidity supply.

The Swiss government helped make the UBS-Credit Suisse deal happen and will change the law to let it happen without a vote from shareholders. Reports say that UBS’s first offer was for $1 billion, but the Credit Suisse board turned it down.

Even after it crashed to just $8.6 billion (£7 billion), down 86% since February 2021, due to a protracted string of scandals, compliance issues, and poor financial bets, the price tag is still substantially below its stock market worth.

In 2014, the bank admitted that it helped US customers avoid paying taxes. Because of this, the US government and New York’s financial authorities fined the bank $2.6 billion.

In 2020, Tidjane Thiam, who was the CEO of Credit Suisse at the time, quit after two corporate espionage scandals involving top employees. A year later, the bank lost $5.5 billion due to the failure of US hedge fund Archegos Capital.

After the Guardian reported, based on a leak, that fraudsters, criminals, and dishonest lawmakers had stored £80 billion with the Zürich-based lender, the tempest of the bad press got worse.

Last year, customers started taking billions of pounds out of the bank after hearing rumors about its financial stability. This was the bank’s worst full-year loss since the 2008 banking crisis.

Also Read: Warren Buffett Talks with Biden Officials on Banking Crisis ahead of Fed Meet

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