Cant Believe What Just Happened To UBS Stock Check Out the Shocking Quote Now

BERN, Switzerland -- Banking giant UBS is buying its smaller rival Credit Suisse in an effort to avoid further market-shaking turmoil in global banking, Swiss President Alain Berset announced on Sunday night.

Swiss president Alain Berset, who did not specify a value of the deal, called the announcement one of great breadth for the stability of international finance. An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system.

Credit Suisse is designated by the Financial Stability Board, an international body that monitors the global financial system, as one of the world's globally systemic important banks. This means regulators believe its uncontrolled failure would lead to ripples throughout the financial system not unlike the collapse of Lehman Brothers 15 years ago.

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Sunday's news conference follows the collapse of two large U.S. banks last week that spurred a frantic, broad response from the U.S. government to prevent any further bank panics. Still, global financial markets have been on edge since Credit Suisse's share price began plummeting this week.

The 167-year-old Credit Suisse already received a $50 billion (54 million Swiss francs) loan from the Swiss National Bank, which briefly caused a rally in the bank's stock price. Yet the move did not appear to be enough to stem an outflow of deposits, according to news reports.

Still, many of Credit Suisse's problems are unique and do not overlap with the weaknesses that brought down Silicon Valley Bank and Signature Bank, whose failures led to a significant rescue effort by the Federal Deposit Insurance Corporation and the Federal Reserve. As a result, their downfall does not necessarily signal the start of a financial crisis similar to what occurred in 2008.

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The deal caps a highly volatile week for Credit Suisse, most notably on Wednesday when its shares plunged to a record low after its largest investor, the Saudi National Bank, said it wouldn't invest any more money into the bank to avoid tripping regulations that would kick in if its stake rose about 10%.

On Friday, shares dropped 8% to close at 1.86 francs ($2) on the Swiss exchange. The stock has seen a long downward slide: It traded at more than 80 francs in 2007.

Its current troubles began after Credit Suisse reported on Tuesday that managers had identified material weaknesses in the bank's internal controls on financial reporting as of the end of last year. That fanned fears that Credit Suisse would be the next domino to fall.

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While smaller than its Swiss rival UBS, Credit Suisse still wields considerable influence, with $1.4 trillion assets under management. The firm has significant trading desks around the world, caters to the rich and wealthy through its wealth management business, and is a major advisor for global companies in mergers and acquisitions. Notably, Credit Suisse did not need government assistance in 2008 during the financial crisis, while UBS did.

Despite the banking turmoil, the European Central Bank on Thursday approved a large, half-percentage point increase in interest rates to try to curb stubbornly high inflation, saying Europe's banking sector is resilient, with strong finances.

ECB President Christine Lagarde said the banks are in a completely different position from 2008 during the financial crisis, partly because of stricter government regulation.

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The Swiss bank has been pushing to raise money from investors and roll out a new strategy to overcome an array of troubles, including bad bets on hedge funds, repeated shake-ups of its top management and a spying scandal involving UBS.UBS (NYSE:UBS) confirmed on Sunday that it agreed to acquire struggling Credit Suisse (NYSE:CS) for a total of CHF 3B (US$3.25B) in a stock-based transaction that also provides downside protection for the larger UBS. The deal was struck in an effort to restore necessary confidence in the stability of the Swiss economy and banking system, Credit Suisse said.

The transaction, the result of a Swiss government-led negotiation, has the full support of Swiss Federal Department of Finance, Finma, and the Swiss National Bank.

Under the terms of the agreement, Credit Suisse (CS) shareholders will get one UBS share for every 22.48 Credit Suisse shares, equivalent to CHF 0.76/share. Credit Suisse shares last traded at CHF 1.86 in Zurich on Friday.

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UBS (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, UBS said. In addition, both banks have unrestricted access to the Swiss National Bank existing facilities, which can provide liquidity to them according to guidelines on monetary policy instruments.

On Sunday, Credit Suisse (CS) was informed that Finma has determined that Credit Suisse's Additional Tier 1 Capital in the aggregate nominal amount of ~CHF 16B will be written off to zero.

The combination of the two banks is expected to generate annual run-rate of cost reductions of more than $8B by 2027. UBS (UBS) expects the deal to add to EPS by 2027 and the bank remains capitalized well above its target of 13%.

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The transaction isn't subject to shareholder approval. UBS (UBS) has obtained pre-agreement from Finma, Switzerland's financial markets authority; Swiss National Bank; the Swiss Federal Department of Finance and other core regulators.

That unusual provision is likely to trigger legal and political resistance, said Octavio Marenzi, CEO of management consultancy Opimas. First, the Federal Council has made use of emergency powers to force this merger through. A legal challenge by Credit Suisse shareholders, who will claim that their property has been illegally confiscated, is guaranteed.

UBS (UBS) shareholders may also protest the transaction, as risk from Credit Suisse (CS) could prove to be a mill stone around UBS’ neck that will drag both banks under, he added.

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Overall, the government-sponsored deal has ramifications for other Swiss Financial institutions, Marenzi said. A country-wide reputation with prudent financial management, sound regulatory oversight, and, frankly, for being somewhat dour and boring regarding investments, has been wiped away.

Credit Suisse (CS) said it continues to operate in the ordinary course of business and implement its restructuring in collaboration with UBS (UBS).

The combination increases UBS's lead in its Swiss home market and creates a leading global wealth manager with $5T of invested assets across the group, UBS (UBS) said. Its strategy remains unchanged, including its focus on growth in the Americas and Asia-Pacific.

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The transaction reinforces UBS’s position as the leading universal bank in Switzerland. The combined businesses will be a leading asset manager in Europe, with invested assets of more than USD 1.5T, the company said.

Credit Suisse (CS) Chairman Axel P. Lehmann said, Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome.

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