UBS to Buy Credit Suisse in $2B All-Stock Deal, Includes SNB $US100 Billion Liquidity Line

Over a weekend of dealings likened to a John Le Carre Novel Swiss banking giant UBS Group has agreed to acquire the 167-year-old lender Credit Suisse Group in a Switzerland government-led deal aimed to calm markets before they reopen in Zurich. There were fears a collapse of CS after it become effectively financially crippled after the contagion the followed the collapse of a serious of high-risk American regional banks collapsed. The move comes ahead of a deluge of Central bank policy meetings this week including the Swiss National Bank and the Federal Reserve.

The Swiss National Bank has agreed to offer a $US100 billion liquidity line to UBS as part of the deal, according to the Financial Times, which reported the agreement first. Swiss authorities are poised to change the country’s laws to bypass a shareholder vote, the paper reported, citing people close to the matter.

The Swiss National Bank’s pledge to provide sufficient liquidity to CS apparently failed to calm investor’s fears over the bank’s prospects. Swiss authorities lent 50 billion Swiss francs to Credit Suisse to stabilize its balance sheet.

FT reported, citing people familiar with the matter that UBS will pay more than $2 billion in an all-stock deal, for the smaller Credit Suisse. The price is just a quarter of Credit Suisse’s market cap of ~CHF 7.4B ($8Billion) at the close of Friday. In the past five years, CS’s ADSs have sunk 89% as the Swiss bank has struggled with scandals.

UBS is less focused on capital-intensive investment banking and corporate lending, and more geared towards private banking and Credit Suisse’s local Swiss banking operations.

It has been reported that UBS is asking the Swiss government to cover about $US6 billion in legal costs and potential future losses in any deal, and as many as 10,000 jobs may be cut worldwide if the two banks combine.

U.S. have been in contact with their Swiss counterparts as both banks operate in the U.S. and are considered systemically important in Switzerland, Bloomberg had reported earlier.

Global banking stocks have been crushed since the collapse of Silicon Valley Bank just over a week ago. The S&P Banks index has plunged 22 per cent, its biggest two-week loss since the COVID-19 market crash in March 2020.

CDS Surge

  • Credit Suisse CDS surged an unprecedented 596 this week to record 1,014 bps. In data back to 2007, the previous largest weekly increase was 66 bps in December. The largest weekly gain during the Covid crisis was 37 bps.
  • Swiss mega-bank UBS’s CDS surged 56 to 128 bps, the largest weekly gain since global crash week, September 19th 2008 (107bps).
  • Deutsche Bank CDS surged 64 bps this week, the largest weekly gain in data back to 2019 – even surpassing the two-week 60 bps Covid crisis jump in March 2020.
  • France’s Societe Generale (SocGen) CDS jumped 33 to 95 bps, the largest weekly gain in a decade.
  • Germany’s Commerze Bank CDS rose 28 this week to 94 bps, surpassing the Covid crisis for the largest weekly gain in data back to 2019.
  • Italy’s UniCredit saw CDS jump 26 this week to 122 bps, the largest weekly gain since the Covid panic.

Read More About the Collapse of US Banks and the contagion and how the bond market is reacting:

Bond Traders Weekly Outlook: Treasuries Rally with Flight to Safety Ahead of FOMC

From The TradersCommunity News Desk