The first merger of two banks considered systemically important since the financial crisis nearly 15 years ago took place in a matter of days. UBS will pay more than $3.2 billion for Credit Suisse, a fraction of the Swiss company’s market value, which at its best reached $100 billion.
Markets welcomed the purchase, sealed in marathon sessions that started last Friday and ended hours before Asian markets opened on Monday.
The agreement was intended to avoid a global financial crisis and had the support of the Swiss Government, in a negotiation that ended with five keys.
The first of them are the terms with which they closed the merger. Specifically, the shareholders of Credit Suisse will receive a share of UBS for every 22.48 shares they have.
Officials said they expect the deal to close by the end of the year, although the president of UBSColm Kelleher said there was no chance for the firm he runs to back out. Morgan Stanley and JPMorgan Chase were the advisers to the Swiss bank in agreeing to the acquisition.
The second key of the agreement is in the business future that the company will have, which combined will add up to $5 trillion in customer assets. Kelleher highlighted the performance of the wealth management business of Credit Suisse and the Swiss business, but expressed doubts about the future of the investment arm.
“UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” he told a news conference.
This is related to the third key of the transaction and are the cuts to be made. The president of UBS He said it’s too soon to know a number of job cuts, but he hinted that they will be significant. The firm said it plans to reduce the combined company’s annual cost base by more than $8 billion by 2027.
That’s almost half of Credit Suisse’s expenses last year. In addition, the Swiss lender had already entered a process of cutting 9,000 jobs in an effort to save its operations ahead of the weekend.
Government and bank support
The operation that closed at the end of Sunday afternoon would not have been possible without the fourth key: he Swiss government supportwhich will not even submit the merger between the banks for approval by the regulators.
The Government made available close to 280,000 million dollars, equivalent to a third of its GDP, as guarantees to support the agreement (see graph). For example, banks have unrestricted access to the liquidity facilities of the Swiss National Bank and the Swiss government promised to seize up to $9.7 billion derived from certain assets that UBS assumed as part of the transaction.
This support is given because Credit Suisse it has hard-to-value assets, which UBS plans to sell off.
“Bringing UBS and Credit Suisse together will strengthen the strength of UBS and further enhance our ability to serve our clients,” said UBS Chief Executive Ralph Hamers.
Tranquility for investors came with the fifth key after the agreement became known: central banks from all over the world announced that they were going to easy access to dollar supplies in the markets.
Although the mechanism was not used in a massive way on Monday, the idea is that central banks have the opportunity to obtain dollars through the Federal Reserve on a daily basis, in exchange for an equivalent amount of their local currencies. Before, the frequency was weekly.
The decision helped prop up the markets and after days of uncertainty, the main indicators in the United States and barrels of oil closed with gains.
