The Financial Times (FT) reported on the 19th (local time) that UBS, Switzerland’s largest bank, has agreed to acquire Credit Suisse (CS), Switzerland’s second bank in a liquidity crisis, for more than $2 billion (approximately 2.6 trillion won). .
Citing three sources, the FT said that UBS had agreed to acquire CS after increasing the acquisition amount to $2 billion.
In addition, Swiss authorities said they were ready to change the country’s law to circumvent the shareholder consent process, which usually takes about six weeks.
The transaction results of the two major banks in Switzerland are expected to be announced this evening at the earliest local time.
On this day, behind-the-scenes negotiations were carried out urgently.
According to FT and Bloomberg News, UBS initially offered up to 1 billion dollars (about 1.3 trillion won), but CS objected that the acquisition price was low, which could harm banks and shareholders.
While the Swiss government pushed the deal hard, there were also reports that it was considering the option of nationalizing CS in whole or in part in the event of a final breakdown.
However, it is said that the negotiations were concluded dramatically when UBS re-offered by doubling the acquisition amount.
UBS initially offered 0.25 Swiss francs (about $ 0.27, 353.12 won) per share, but later accepted an increase to 0.5 Swiss francs (about 0.54 dollars, 706.24 won) per share.
However, it is far below the market value based on the closing price on the 17th. CS stock price closed at 1.86 Swiss francs (approximately 2 dollars, 2627.19 won) per share on the 17th.
In addition, the FT reported, citing two sources, that the Swiss National Bank has agreed to provide liquidity worth $100 billion to UBS.
UBS also agreed to loosen conditions that would invalidate transactions if credit spreads spiked, the sources said.
The credit spread is the difference in interest rates between government bonds and corporate bonds, and the widening of this means that it is difficult for companies to borrow money. According to the source, this provision is to be applied from the moment of signing until the end of the transaction.
However, the FT added that some criticize the circumvention of the normal corporate governance structure by preventing shareholders from voting.
Prior to this, despite the announcement that CS would receive a loan of up to 50 billion Swiss francs (approximately 54 billion dollars, 70.6 trillion won) from the Swiss central bank, the stock price declined. It fell about 26% for the week, the worst weekly drop since the COVID-19 pandemic.
This is because stock prices fell and sentiment fluctuated in the aftermath of the US Silicon Valley Bank (SVB) bankruptcy and the closure of New York Signature Bank.
CNBC noted that the size of CS and its potential impact on the global economy far outweigh those of these US banks.
As of the end of last year, CS’s balance sheet stood at about 530 billion Swiss francs (about 748.6 trillion won), about double what it was at the time of the collapse of Lehman Brothers in 2008. CS also has several subsidiaries abroad and is much more connected to the global financial system.
CS lost 38% of its deposits in the fourth quarter of last year. Last year, it recorded an annual net loss of 7.3 billion Swiss francs (about 10.3 trillion won), and additional significant losses are expected this year.
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.