BERN: The Union Bank of Switzerland agreed to buy rival bank Credit Suisse for three billion Swiss francs ($3.23bn) in stock and agreed to assume up to five billion francs ($5.4bn) in losses, in a shotgun merger engineered by Swiss authorities to avoid more market-shaking turmoil in global banking.

The deal includes 100bn Swiss francs ($108bn) in liquidity assistance for UBS and Credit Suisse from the Swiss central bank.

To enable UBS to take over Credit Suisse, the Swiss government will provide a loss guarantee of a maximum of 9bn francs ($9.7bn) for a clearly defined part of the portfolio.

This will be activated if losses are actually incurred on this portfolio. In that eventuality, UBS would assume the first 5bn francs, the federal government the next 9bn francs, and UBS would assume any further losses, the Swiss government said.

Switzerland’s regulator said there was a risk that Credit Suisse could have become “illiquid, even if it remained solvent, and it was necessary for the authorities to take action”.

Credit Suisse additional tier 1 shares with a nominal value of around 16b francs ($17.2bn) will be written down completely after the Swiss government provided support for UBS takeover of Credit Suisse, the regulator said.

The 167-year-old Credit Suisse has been the biggest name ensnared in market turmoil unleashed by the recent collapse of US lenders Silicon Valley Bank and Signature Bank, forcing it to tap $54bn in central bank funding last week.

Published in Dawn, March 20th, 2023