Switzerland – GVT UBS/Credit Suisse Takeover

Switzerland – GVT UBS/Credit Suisse Takeover

On 19 March 2023, SWI GVT, SWI CB, FINMA approved UBS takeover of CS.

  • SWI GVT, federal council welcomed and supported UBS takeover of Credit Suisse (CS).
  • Swiss National Bank provided substantial liquidity assistance to support UBS takeover.
  • SWI FINMA also confirmed that it has approved the takeover of Credit Suisse by UBS.
  • Follows SWI CB, SWI FINMA March 2023 offered liquidity support for CS.
  • Also follows SWI FINMA proceeding on CS client fund outflow statement.
  • As well as SWI FINMA April 2022 action on CS re Archegos and Greensill.

FINMA on UBS Takeover Terms

  • FINMA welcomed the takeover solution, and measures taken by SWI GVT and SWI CB,
  • Said measures taken ensure stability for bank customers and of Swiss financial center.
  • SWI CB granted liquidity assistance backed by default guarantee of Swiss government.
  • The liquidity assistance will provide UBS sufficient liquidity to carry out their takeover.
  • Expected that it will be possible to continue all the business activities of both banks.
  • CS experienced crisis of confidence, manifested by considerable outflow of client funds.
  • Outflows intensified by upheavals in US banking market in March 2023.
  • FINMA believed there was a risk of CS becoming illiquid even if bank remained solvent.
  • Necessary for Swiss authorities to take action, to prevent damage to financial markets.
  • FINMA has been monitoring Credit Suisse operations intensively, over several months.
  • Took measures to stabilize situation, but these were not enough to restore confidence.
  • To protect depositors and markets, offer by UBS to take over Credit Suisse has proven to be the most effective solution; FINMA has therefore approved this transaction.
  • FINMA has coordinated continuously with national and international authorities on CS, namely US Fed and UK PRA, who made statements supporting takeover, (see below).

Bond Write-Down, Capital and Liquidity

  • Extraordinary government support will trigger a complete write-down of nominal value of all AT1 shares of CS of around CHF 16bn, and thus an increase in bank core capital.
  • The takeover will result in a larger bank, for which current regulations require higher capital buffers; FINMA will grant necessary transitional periods for these to be built up.
  • Liquidity assistance should ensure all obligations can continue to be met at all times.
  • Banks involved will have substantial additional liquidity available to carry out takeover.
  • The liquidity provided by the SNB will include a loan covered by a federal guarantee.
  • The Swiss GVT will also provide guarantees for potential losses of certain assets that UBS will acquire as part of the transaction, if these losses exceed a specific threshold.

SWI GVT Liquidity Support, Guarantee

  • Federal Council issued a statement welcoming UBS planned takeover of Credit Suisse.
  • To strengthen stability until takeover is complete, government provided guarantee for additional liquidity assistance from the Swiss National Bank (SNB / SWI CB) to CS.
  • This support is intended to secure the liquidity of Credit Suisse and thus also ensure the successful implementation of the takeover, to protect stability and Swiss economy.
  • Council has established Bankruptcy privilege rights for additional liquidity assistance.
  • They also provide the SWI CB with default guarantee for liquidity assistance.
  • Both measures taken per Articles 184, 185 of Federal Constitution (emergency law).
  • These new measures supplement SWI CB's existing instruments for strengthening banks' liquidity, which include standard emergency liquidity assistance (ELA).
  • To reduce any risks for UBS, the federal government is also granting UBS a guarantee in the amount of CHF 9bn to assume potential losses arising from certain assets that UBS takes over as part of transaction, should future losses exceed a certain threshold.
  • Federal Council will also impose restrictions in regard to bank remuneration packages.
  • CS is thus required to pay risk premium to both SWI GVT and SWI CB, a commitment premium to SWI GTV for providing the default guarantee, and interest to the SWI CB.

SWI CB Statement

  • SWI CB issued a statement noting takeover solution had been found to secure stability.
  • Both banks have unrestricted access to the existing facilities, by which they can obtain liquidity from SWI CB, in accordance with Guidelines on monetary policy instruments.
  • As per GVT emergency ordinance, CS and UBS can obtain a liquidity assistance loan with privileged creditor status in bankruptcy for a total amount of up to CHF 100bn.
  • Furthermore, and based on the emergency ordinance, SNB can grant Credit Suisse a liquidity assistance loan of up to CHF 100bn backed by a federal default guarantee.
  • The structure of the assistance loan is based on the Public Liquidity Backstop (PLB), the key parameters of which were already decided by the Federal Council in 2022.
  • These substantial provisions ensure that both banks have access to necessary liquidity.

UBS Statement

  • UBS issued statement noting the combination is expected to create a business with more than USD 5trn in total invested assets and sustainable value opportunities.
  • Will further strengthen UBS’s position as leading Swiss-based global wealth manager with more than USD 3.4trn in invested assets on a combined basis.
  • Will be a leading asset manager, with invested assets of more than USD 1.5trn.
  • UBS Chairman Kelleher noted that the acquisition is attractive for UBS shareholders but that, as far as Credit Suisse was concerned, it was an emergency rescue.
  • Structured transaction to preserve value left in business, limiting downside exposure.
  • Acquire CS capabilities in wealth and asset management and Swiss universal banking.
  • Will augment strategy of growing capital-light businesses, investment bank is limited.
  • CS shareholders receive 1 UBS share for every 22.48 CS shares held, total of CHF 3bn.
  • UBS benefits from CHF 25bn downside protection from transaction to support marks, purchase price adjustments and restructuring costs, 50% cover on non-core assets.
  • Combination of businesses expected to have annual cost of more than $8bn by 2027.
  • UBS Investment Bank will reinforce its global competitive position with institutional, corporate and wealth management clients through the acceleration of strategic goals in Global Banking, while managing down the rest of Credit Suisse’s Investment Bank.
  • Combined investment banking businesses accounts for 25% of risk weighted assets.
  • Colm Kelleher will be Chairman and Ralph Hamers Group CEO of the combined entity.
  • Transaction is not subject to shareholder approval; UBS obtained pre-agreement from FINMA, SWI CB, SWI GVT and other core regulators on timely approval of transaction.

Credit Suisse Statement

  • Credit Suisse also issued its own statement, setting out the terms of agreed merger.
  • Closing of merger is subject to conditions which both parties are confident can be met.
  • Merger is expected to be consummated by end of 2023, UBS will be surviving entity.
  • UBS is expected to appoint key personnel to Credit Suisse as soon as legally possible.
  • CS will continue to operate in ordinary course of business, in collaboration with UBS.
  • UBS has expressed its confidence that the employment of the staff of CS will continue.
  • FINMA determined that CS Additional Tier 1 Capital (derived from issuance of Tier 1 Capital Notes) in aggregate nominal amount of CHF 16bn, will be written off to zero.
  • In consideration of the circumstances affecting the Swiss economy, the Swiss Federal Council is issuing an emergency ordinance (Notverordnung) tailored to the transaction.
  • Most importantly, the merger will be implemented without the otherwise necessary approval of the shareholders of UBS and Credit Suisse to enhance deal certainty.

US Treasury and Fed Statements

  • US Treasury, Fed welcomed announcement by Swiss authorities to support stability.
  • Noted the capital and liquidity positions of U.S. banking system are strong, and U.S. financial system is resilient; have been in close contact with international counterparts.
  • On same day, Fed, BoE, ECB, CAN, JPN, SWI CB acted re dollar liquidity.

ECB Statement

  • ECB President Christine Lagarde welcomed the swift action taken by Swiss authorities.
  • Actions are instrumental for restoring orderly market conditions and ensuring stability.
  • Stated euro area banking sector is resilient, with strong capital and liquidity positions.

UK BoE and FCA Statement

  • UK BoE/Bank of England also welcomed set of actions set out by the Swiss authorities.
  • Noted the UK banking system is well capitalized and funded; remains safe and sound.
  • The UK FCA confirmed that it is minded to approve the actions announced by Swiss authorities in relation to the entities which fall under regulatory and supervisory remit.

SWI SBA Statement

  • SWI SBA considered the takeover of Credit Suisse by UBS and the measures taken by the Swiss National Bank (SNB) and the authorities to be sensible.
  • Takeover will ensure the stability of the Swiss financial center, give those responsible sufficient time for the upcoming restructuring and strengthen trust in customers.