UBS to buy crisis-hit bank Credit Suisse in bid to avoid financial chaos

Banking giant UBS will buy its ailing rival Credit Suisse, in a snap deal brokered by Swiss authorities to avoid further chaos in markets after a series of high-profile financial failures.

Swiss market watchdog Finma approved the £2.7bn takeover, which came after frantic talks between bank bosses and ministers desperate to secure a deal before the start of trading on Monday.

UBS, a Switzerland-based international investment bank, will pay 3 billion francs (£2.66bn) to acquire its smaller rival, far below the price that would have been expected in less urgent circumstances.

Sources familiar with the negotiations told FT there was limited contact between the two banks, with the terms heavily influenced by the Swiss National Bank (SNB) and Finma.

Swiss president Alain Berset called the announcement “one of great breadth for the stability of international finance. An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system.”

The 167-year-old Credit Suisse was brought to the brink of financial calamity this week despite a £45bn emergency loan from Switzerland’s central bank after its shares plummeted to a record low after its largest investor, the Saudi National Bank, said it would not invest any more money into the bank to avoid tripping regulations that would kick in if its stake rose about 10 per cent.

The government loan was agreed to reassure markets and depositors, but it failed to stop a rush of withdrawals by account-holders, prompting the Swiss government to seek a merger.

Credit Suisse is one of 30 so-called systemic global banks considered important to the global finance structure. Its troubles are expected by industry experts to have a knock-on effect for world banking.

On Friday, shares dropped 8 per cent to close at 1.86 francs (£1.65) on the Swiss exchange. The stock has seen a long downward slide: It traded at more than 80 francs in 2007.

Its current troubles began after Credit Suisse reported on Tuesday that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year.

That fanned fears that Credit Suisse would be the next domino to fall after the collapse of two large US banks last week that spurred a frantic, broad response from the US government to prevent any further bank panics.

At least two major banks in Europe are scanning for signs of contagion in the continent’s banking sector and are looking to the Federal Reserve and the ECB for stronger signals of support, two senior executives close to the discussions told Reuters.

It is feared the fallout of the recent turmoil in global finance will have ripple effects next week, the two executives said.

Credit Suisse has $1.4 trillion (£1 trillion) in assets under management and has significant trading desks around the world, caters to the rich and wealthy through its wealth management business, and is a major advisor for global companies in mergers and acquisitions.

It is one of the largest investment banking employers in the City of London, employing around 5,000 people. It was unclear what the buyout would mean for the bank’s global workforce, though sources earlier in the weekend told Reuters UBS may be forced to cut 10,000 jobs.

The US, UK and Swiss central banks all hold scheduled meetings this week. Despite still high inflation, the banking turmoil has forced traders to rapidly alter expectations for further rates hikes as higher interest rates can cause a fall in demands for new loans, damaging banks’ profits.