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UBS Group to Acquire Credit Suisse in All-Stock Deal



Credit Suisse’s Liquidity Issues

UBS Group is set to acquire its embattled former rival, Credit Suisse. The writing was on the wall last week, and today, it looks to be a done deal. As you’re likely aware, Credit Suisse, formerly Switzerland’s second largest bank, suffered serious liquidity issues last week. The Swiss bank was already on shaky ground when a series of banking collapses in the United States, led by SVB Financial Group (NASDAQ: SIVB), roiled the global banking sector. Suffering from “significant deposit and net asset outflows”, the Credit Suisse share price plunged, and trading was halted.

The Deal

Now, in a deal backed by the Swiss government and Swiss National Bank in an effort to contain the crisis, UBS will acquire Credit Suisse for an all-stock transaction valued at approximately CHF3 billion (AU$4.8 billion). Credit Suisse shareholders will get one UBS share for every 22.48 Credit Suisse shares they own, or 0.76 francs per share. That’s down a gut-wrenching 99% from where the bank was trading in mid-2007. The Swiss government has waived the standard requirement to get shareholder approval for the deal to move forward.

The Future

On completion of the deal, expected before the end of the calendar year, the combined entities will manage some US$5 trillion of invested assets. “This acquisition is attractive for UBS shareholders, but let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” UBS chairman Colm Kelleher said (quoted by Bloomberg). UBS plans to do some hefty cost-cutting to ensure the viability of the combined businesses moving forward. “Let me be very specific on this: UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” Kelleher added.

Impact on Shareholders and Bondholders

While shareholders will get at least some of their money back, bondholders won’t be so lucky, with roughly CHF16 billion of Credit Suisse bonds set to lose all value.

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