Credit Suisse to be bought by UBS following record-low shares

UBS has agreed to buy out Credit Suisse after record-low share prices and fears of the collapse of Silicon Valley Bank shook financial institutions.

The Swiss President Alain Berset announced the purchase on Sunday night, stating that the deal ensures the “stability of international finance. An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system,” according to the Associated Press.

CREDIT SUISSE SHARES FALL TO 20% FOR THE SECOND CONSECUTIVE DAY

The shares of Credit Suisse skyrocketed up to 33% before settling at 25% on March 16, following a two-day decline to an all-time low.

Under the agreement, UBS buys Credit Suisse for $3.2 billion, an amount significantly lower than the $9.5 billion Credit Suisse was valued just on Friday, per the Financial Times.

The reported deal also represents an increase from the original amount of $1 billion that three people close to the deal disclosed to the New York Times on Sunday. Despite a nearly $54 billion bailout from the Swiss National Bank, Credit Suisse could not overcome years of scandal and instability in the banking sector.

The emergency ordinance passed by the Swiss Federal Council allowed for the deal to go ahead without requiring shareholder approval. Previously, Swiss laws mandated that shareholders have a six-week consultation period before a transaction can be approved, according to the New York Times.

The Chairman of Credit Suisse, Axel Lehmann, believes that the deal is a “clear turning point.”

“It is a historic, sad and very challenging day for Credit Suisse, for Switzerland and for the global financial markets,” Lehmann said. He added that Credit Suisse will focus on the future and the well-being of the 50,000 employees of the bank, 17,000 of whom are based in Switzerland.

While the fall of Silicon Valley Bank in the United States did not directly cause the decline of Credit Suisse, investor fears about the banking sector magnified the impact of the fall of Silicon Valley Bank.

A week ago, the California bank had a nearly billion-dollar negative cash balance, forcing regulators to shut it down on March 9. The Federal Reserve, Justice Department, and Securities and Exchange Commission are investigating the bank’s collapse.

To alleviate people’s concerns about financial instability, Treasury Secretary Janet Yellen testified before the Senate Finance Committee on Thursday, saying that “the US banking system remains sound” despite the turmoil.

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Yellen and Federal Reserve Board Chair Jerome Powell released a joint statement in support of UBS’s purchase of Credit Suisse.

“We welcome the announcement by the Swiss authorities today to support financial stability,” the economic leaders stated. “The capital and liquidity positions of the US banking system are strong, and the US financial system is resilient. We have been in close contact with our international counterparts to support their implementation.”