Swiss authorities said on Sunday that the deal to buy Swiss bank Credit Suisse was done in order to avoid market-shaking turmoil in global banking.
The Swiss central bank will provide substantial liquidity to the merged bank, it said at a news conference in Bern. The deal was a way to secure financial stability and protect the Swiss economy in an exceptional situation, according to the deal.
A deal value was not immediately clear. A report in the Financial Times put it at more than $2 billion.
Officials have been trying to rescue the 167-year-old bank, one of the world's largest wealth managers, after a brutal week saw the second and third largest U.S. bank failures in history. A deal for Credit Suisse could ripple through global financial markets as one of the 30 global banks that are seen as systemically important.
Two senior executives with knowledge of the discussions said that two major banks in Europe are looking at scenarios of contagion spreading in the region's banking sector and are looking to the European Central Bank and the Federal Reserve to step in with stronger signals of support.
The weekend negotiations followed efforts in Europe and the US to support the sector since the collapse of U.S. lenders Silicon Valley Bank and Signature Bank. The Swiss central bank loaned billions to Credit Suisse in order to stabilize its balance sheet while U.S. President Joe Biden's administration backstop consumer deposits.
The fallout from the crisis in Credit Suisse and the failure of the two U.S. banks could ripple through the financial system this week, the two executives told Reuters on Sunday.
Credit Suisse shares lost a quarter of their value last week. The bank was forced to tap $54 billion in central bank funding as it tried to recover from scandals that have undermined the confidence of investors and clients.
Two sources with knowledge of the matter said on Sunday that Swiss authorities are looking at imposing losses on Credit Suisse bondholders as part of a rescue of the bank.
European regulators are apprehensive about such a move, because they fear it will hurt investor confidence elsewhere in Europe's financial sector, the sources said.
The Bank of England has indicated to international counterparts and to UBS that it will back the proposed takeover of Credit Suisse, which counts Britain as a key market, and the US government is working with their Swiss counterparts to broker a deal, Bloomberg reported.