UBS has agreed to absorb losses of up to $5.4 billion in a robust merger coordinated by Swiss authorities to prevent further disruptions in the global banking sector. This is part of UBS's acquisition of its smaller rival Credit Suisse for three billion Swiss francs ($3.23 billion). Swiss regulators were compelled to intervene and coordinate the deal to stop the ongoing crisis of confidence surrounding Credit Suisse from further infiltrating the broader financial system. The deal is expected to close by the end of 2023.
The merger comes in the wake of efforts in Europe and the United States to support the banking sector following the collapses of Silicon Valley Bank and Signature Bank. The European Central Bank stated today that salvaging Credit Suisse was essential to restore calm in financial markets and that it remains prepared to provide loans to Eurozone banks if necessary.
Christine Lagarde, the bank's president, welcomed the swift actions and decisions taken by Swiss authorities in a statement, calling them necessary for restoring orderly market conditions and ensuring financial stability. She added, "The banking sector in the Eurozone is resilient, with strong capital and liquidity positions. In any case, we have tools ready to provide liquidity support to the Eurozone financial system if necessary to ensure a smooth transmission of monetary policy."
The Swiss finance minister stated that the bankruptcy of a globally significant bank could have had irreparable consequences for financial markets. The Swiss National Bank announced at a press conference in the Swiss capital Bern that it would provide substantial liquidity to both banks following their merger, noting that with UBS's acquisition of Credit Suisse, "we have reached a solution to achieve financial stability and protect the Swiss economy in this exceptional situation."
On another front, Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen expressed their support for the Swiss authorities' actions to bolster financial stability. They stated, "The capital and liquidity conditions in the U.S. banking system are strong, and the U.S. financial system is resilient," adding that they are in close contact with their international counterparts. Meanwhile, informed sources reported that the Federal Deposit Insurance Corporation is planning to put Silicon Valley Bank up for sale again as part of its potential dismantling efforts.
