Acquisition of Credit Suisse by UBS
On 19 March 2023, Swiss investment bank UBS Group AG agreed to buy Credit Suisse for CHF 3 billion (US$3.2 billion) in an all-stock deal brokered by the government of Switzerland and the Swiss Financial Market Supervisory Authority.[1][2][3] The Swiss National Bank supported the deal by providing more than CHF 100 billion (US$104 billion) in liquidity to UBS following its takeover of Credit Suisse's operations,[4] while the Swiss government provided a guarantee to UBS to cover losses of up to CHF 9 billion (US$9.6 billion) over the short term.[1] Additionally, CHF 16 billion (US$17.2 billion) of Additional Tier 1 bonds were written down to zero.[5]
Credit Suisse is a globally systemically important bank whose investment banking unit, First Boston, had been recently tarnished by a series of high-profile scandals. The banking crisis in the United States had caused fear among global investors and led to panic over other possibly troubled banks. Credit Suisse's share price plunged after the leading shareholder ruled out further investment into the bank due to regulatory issues.[6] The deal was rapidly agreed upon and announced just before the Asian financial markets opened on Monday morning in order to prevent "market shaking" turmoil in the global financial markets.[7] Soon afterward, central banks across the world announced USD liquidity measures to try and ease wider market panic and avoid a wider banking crisis.[6]
Credit Suisse was founded in 1856. Over the next 150 years it became a leader among Swiss banks, as the "gnomes of Zürich" funded the development of their nation. After buying First Boston in the late 20th century, Credit Suisse became a bulge bracket investment bank that competed with others globally such as Goldman Sachs. The 2007–2008 financial crisis affected Credit Suisse less than peers;[8][9] while Swiss National Bank, the central bank, rescued rival UBS after no private investor was willing to do so by purchasing $60 billion of toxic assets and $5.3 billion in shares of stock from UBS as a form of a capital infusion, Credit Suisse raised a far smaller $9 billion privately from investors to strengthen its financial position.[10][9]
After the financial crisis, Credit Suisse's investment bank continued risky deals to compete with large U.S. financial institutions, while many large U.S. banks and UBS pursued more conservative strategies, and sold off riskier assets to de-risk their own portfolios.[8][9]
Basel III was criticized as negatively affecting the stability of the financial system by increasing incentives for banks to game the regulatory framework.[11] Notwithstanding the enhancement introduced by the Basel III standard, it argued that "markets often fail to discipline large banks to hold prudent capital levels and make sound investment decisions". The greater the systemic importance of a bank relative country's GDP, such as in the case of Swiss banks, the greater the likelihood of the bank taking excessive risks.[12]
In the Swiss financial industry, the expression "It would be like UBS and Credit Suisse merging" was a joke to indicate the unlikelihood of something happening,[13] and Swiss authorities rescued UBS because they preferred having two large banks. A UBS-Credit Suisse merger was nonetheless long rumored. Tidjane Thiam, Credit Suisse CEO from 2015 to 2020, often discussed the idea with colleagues.[14] As Credit Suisse weakened, UBS executives planned for how to acquire its rival, and what governmental help it would need. To avoid again using public funds if a large bank needed help, Swiss authorities planned to write off its stock and bonds as needed.[15]
Inverted yield curve in 2023