Switzerland-based multinational investment bank UBS has agreed to buy lender Credit Suisse for CHF 3 billion following a series of urgent talks. As part of the deal, UBS will pay more than CHF 0.

50 a share in its own stock, which is considerably below Credit Suisse’s closing price of CHF 1. 86 on 17 March 2023. According to Reuters, the Swiss National Bank has also agreed to offer a USD 100 billion liquidity line to Credit Suisse as part of the deal.

Commenting on these developments, UBS officials highlighted that the acquisition is beneficial for UBS shareholders but represents an emergency rescue for Credit Suisse. They also revealed the structured nature of the transaction that aims to preserve the value left in the business while limiting UBS’s downside exposure. They also talked about the way this merger can support UBS’s growth ambitions in the Americas and Asia while adding scale to its European business.

The terms of the all-share transaction dictate that Credit Suisse shareholders will receive 1 UBS share for every 22. 48 Credit Suisse shares held, which is equivalent to CHF 0. 76 per share for a total consideration of CHF 3 billion.

UBS also agreed to a softening of a material adverse change clause. This clause could potentially void the deal if its credit default spreads jump. UBS benefits from CHF 25 billion of downside protection from the transaction to support marks, purchase price adjustments and restructuring costs, and additional 50% downside protection on non-core assets.

Both banks have unrestricted access to the Swiss National Bank’s existing facilities, through which they can obtain liquidity from the SNB in accordance with the guidelines on monetary policy instruments. According to Swiss Finance Minister Karin Keller-Sutter cited by DW, the government in Bern had agreed to provide guarantees of up to CHF 9 billion to underwrite the takeover. However, the finance minister emphasised that these guarantees would only apply to a ‘very specific portfolio’, that is being taken over by UBS.

How will the deal affect investors? According to marketwatch. com, Saudi National Bank paid USD 1. 5 billion for a 9.

9% stake in Credit Suisse around half a year ago. That stake is now worth considerably less after UBS has agreed to acquire Credit Suisse. However, the Saudi National Bank is not the only Middle Eastern investor that feels the sting of loss.

The Qatar Investment Authority also has a 6. 8% stake in Credit Suisse, which occupies the sixth-largest position in its portfolio. Another important shareholder is the Norges Bank Investment Management, which is the sovereign wealth fund of Norway.

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