Swiss regulators are playing a key role in the deal as governments look to stem a contagion that threatens the global banking system, and UBS agreed to buy its embattled rival Credit Suisse.
A solution to secure financial stability and protect the Swiss economy in this exceptional situation was found with the takeover of Credit Suisse by UBS, according to a statement from the Swiss National Bank, which pledged a loan of up to 100 billion $108 billion in Swiss francs to support the combination.
The Swiss Government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank assisted in taking over the country's two largest banks, according to the statement. No amount was given in the initial statement.
The UBS deal was rushed together before markets reopened on Monday after Credit Suisse shares logged their worst weekly decline since the outbreak of the coronaviruses. The losses came despite a new loan of up to 50 billion Swiss francs $54 billion from the Swiss central bank to halt the slide and restore confidence of the bank's counterparties in the financial markets.
Credit Suisse had already been battling a string of losses and scandals, and the last two weeks sentiment was rocked again as banks in the U.S. reeled from the collapse of Silicon Valley Bank and Signature Bank. The creation of a new funding facility for troubled financial institutions and the halt of uninsured deposits in the failed banks are not enough to stem the shock and is threatening to envelop more banks in the U.S. and abroad.
Despite regulators involvement in the pairing, the deal gives UBS autonomy to run the acquired assets as it sees fit, which could mean significant job cuts, sources told CNBC s David Faber.
Credit Suisse's scale and potential impact on the global economy is much larger than the U.S. regional banks, which pressured Swiss regulators to find a way to bring the country's two largest financial institutions together. Credit Suisse's balance sheet is twice the size of Lehman Brothers when it collapsed, at around 530 billion Swiss francs as of the end of 2022. It is also more globally connected, with multiple international subsidiaries, making an orderly management of Credit Suisse's situation even more important.
Bringing the two rivals together was not without its struggles, but pressure to stave off a systemic crisis won out in the end. UBS initially offered to buy Credit Suisse for around $1 billion Sunday, according to multiple media reports. Credit Suisse reportedly balked at the offer, saying it was too low and would hurt shareholders and employees, people with knowledge of the matter told Bloomberg.
Sources told CNBC's Faber that UBS was in talks to buy the bank for more than 1 billion Swiss francs by Sunday afternoon. He said that the price of the deal went up throughout the day.
Credit Suisse lost around 38% of its deposits in the fourth quarter of 2022 and revealed in its delayed annual report early last week that outflows have yet to reverse. The Swiss francs reported a full-year net loss of 7.3 billion Swiss francs for 2022 and expects to make a substantial loss in 2023.
The bank had previously announced a massive strategic overhaul in a bid to address chronic issues, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.