What is the UBS-Credit Suisse merger and how will it affect me?
On March 19, Credit Suisse, the second largest bank in Switzerland, agreed to a takeover bid from rival firm UBS. The deal, backed and guaranteed by the government, will see the company bought for 3 billion Swiss francs, well below its market value. While much has been made of the global impact of the takeover, here's how the UBS-Credit Suisse merger will affect people living in Switzerland.
UBS to buy Credit Suisse for 3 billion Swiss francs
UBS has agreed to buy their stricken rival Credit Suisse for 3 billion francs. As part of the deal, the Swiss National Bank (SNB) - Switzerland’s central bank - has agreed to supply the international company with 100 billion francs worth of loans in order to smooth the transition. Federal authorities have also agreed to “absorb” up to 9 billion francs worth of potential UBS losses generated as a consequence of the deal.
It follows a number of high-profile scandals at Credit Suisse over the last decade, which culminated in a cataclysm of events last week that saw the firm’s share price drop by 30 percent in a day. Despite accepting a 50 billion franc bailout from the SNB on March 17, and being "financially solvent" according to the bank’s officials, the government was said to have encouraged the two companies to merge, in order to shore up Switzerland’s reputation as a financial hub.
Credit Suisse-UBS merger necessary to avoid financial collapse
Speaking to reporters, Finance Minister Karin Keller-Sutter argued that the collapse of Credit Suisse would have caused “irreparable economic turmoil” around the world, especially given the recent bankruptcies of a number of American banks like Silvergate, Signature and Silicon Valley Bank. She said the deal was “a commercial solution, not a bailout”, and that the Federal Council expected the takeover to “lay the foundations for greater stability."
Credit Suisse chairperson Axel Lehmann called the bailout "historic, sad and challenging." After 167 years of financial supremacy from their base in Zurich - having been first founded in 1856 to fund improvements in the Swiss public transport network and energy system - the firm will now be under the control of another bank, with UBS CEO Ralph Hamers expected to lead the company from now on.
In trying to explain what had happened, Lehmann said that Credit Suisse was “overtaken by legacy issues, risks and a business model that does not work in this market." Ultimately, it was an accumulation of "things that built up over many years and then materialised."
How will the failure of Credit Suisse impact me?
With the failure of one of Switzerland’s most prominent banks, politicians and the media have expressed outrage at the deal, with many questioning whether the events of March 19 will tarnish the alpine nation’s reputation for financial stability and competence. Along with the possible global consequences of the deal, for customers and shareholders, here’s what you need to know:
Credit Suisse stockholders are to be offered rappen on the franc
First, people who own stock will be offered one UBS share for every 22,48 shares of Credit Suisse. This will mean a return of around 0,76 rappen (centimes) a share - for comparison, the bank's share price closed at 1,86 francs a share on Friday.
Investment arm of Credit Suisse to be scaled back
For those with financial assets and investments with Credit Suisse, UBS president Colm Kelleher told a press conference that the firm’s investment banking business will be scaled back. While the assets will continue to be controlled by Credit Suisse for the time being, Kelleher said that the actions of investment funds will be reduced and adapted to reflect UBS’s "conservative risk culture."
Credit Suisse accounts will continue to operate until merger complete
For those with Credit Suisse current accounts or mortgages, the company was keen to stress that they “do not expect there to be any disruption to client services,” with customers able to access their funds as usual. Credit Suisse will continue to run the accounts, with “close collaboration” with UBS, until the company fully transitions and becomes part of the company.
Credit Suisse estimated that the merger will be complete by the end of the year at the latest. However, when speaking to Blick, UBS said that they hope to keep the "Credit Suisse" brand around for the next four to five years.
Will people working at Credit Suisse lose their jobs?
Finally, perhaps the biggest impact will be related to jobs in the financial industry in Switzerland. In the short term, Finance Minister Keller-Sutter called for certainty for workers, with Credit Suisse telling Watson that "UBS has expressed confidence that Credit Suisse employees will continue to be employed."
However, with UBS saying that the merger will force the firm into cost-saving measures worth 8 billion US dollars by 2027, Watson argued that the events of March 19 will inevitably see some workers lose their jobs. Both UBS and Credit Suisse employ more than 16.000 people across Swiss cities and cantons.
Thumb image: Shutterstock.com / Michael Derrer Fuchs