[Editor's note: This story has been updated to reflect the final price of the UBS-Credit Suisse transaction, which is roughly $1.3 billion higher than what was initially reported Sunday by Bloomberg and other sources.]
UBS Group AG agreed to buy Credit Suisse Group AG in a historic, government-brokered deal aimed at containing a crisis of confidence that had started to spread across global financial markets.
The Swiss bank is paying 3 billion francs ($3.2 billion) for its rival in an all-share deal that includes extensive government guarantees and liquidity provisions. The price per share marked a 99% decline from Credit Suisse’s peak in 2007.
The Swiss National Bank is offering a 100 billion-franc liquidity assistance to UBS while the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over. Regulator Finma said about 16 billion francs of Credit Suisse bonds will become worthless to ensure private investors help shoulder the costs.
The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address client outflows and a massive rout in Credit Suisse’s stock and bonds over the past week following the collapse of smaller U.S. lenders.
A liquidity backstop by the Swiss central bank mid-week failed to end a market drama that threatened to send counterparties fleeing, with potential ramifications for the broader industry.
“It was indispensable that we acted quickly and find a solution as quickly as possible“ given that Credit Suisse is a systemically important bank, Swiss National Bank President Thomas Jordan said at a press conference late Sunday.
The Federal Reserve and Treasury Department welcomed the deal, as did the European Central Bank. U.S. authorities had been working with their Swiss counterparts because both lenders have extensive operations in the US, Bloomberg reported earlier.
Authorities sought an agreement before markets opened again in Asia.
U.S. equity futures rose early Monday as investors weighed the agreement and central bank moves to boost dollar liquidity. The Fed and five other central banks announced coordinated action on Sunday to boost liquidity in U.S. dollar swap arrangements, the latest effort by policymakers to ease growing strains in the global financial system.
UBS Chairman Colm Kelleher said he will shrink Credit Suisse’s investment bank, a unit that has racked up losses in recent years, likely ending the dreams of a CS First Boston spinoff.