UBS Acquisition on Credit Suisse

Central Banks try to calm markets after UBS deal to buy Credit Suisse

Some of the world's largest central banks came together on Sunday to stop a banking crisis from spreading as Swiss authorities persuaded UBS Group AG to buy rival Credit Suisse Group AG in a historic deal.

In the deal, UBS paid 3 billion Swiss francs ($3.23 billion) for Credit Suisse and assume up to $5.4 billion in losses.

The announcement led the U.S. Federal Reserve, European Central Bank and other major central banks to issue statements to reassure markets that have been affected by the banking crisis.

S&P 500 futures were up 0.51% in early trading while Nasdaq futures rose 0.66%.

New Zealand dipped at the open and Australian shares were set to open down. Crude futures edged lower. The safe-haven dollar lost ground against peers.

In response to the crisis, the Fed said it had joined with central banks in Canada, England, Japan, the EU and Switzerland in a coordinated action to enhance market liquidity.

The ECB vowed to support Euro zone banks with loans if needed and welcomed the Swiss rescue of Credit Suisse, saying it was "instrumental" for restoring calm. Fed Chair Jerome Powell and U.S. Treasury Secretary Janet Yellen also welcomed the announcement by the Swiss authorities.

The Swiss banking marriage follows efforts in Europe and the United States to support the sector since the collapse of U.S. lenders Silicon Valley Bank and Signature Bank.

Some investors welcomed the weekend steps but took a cautious stance. On Sunday, First Republic Bank saw its credit ratings downgraded deeper into junk status by S&P Global, which said the deposit infusion may not solve its liquidity problems.

DECISIVE INTERVATION

According to sources, major banks in Europe were seeking stronger signals of support from the Fed and ECB to stem contagion, which led to an intervention on Sunday.

The Euro, the pound, and the Australian dollar all rose by about 0.4% against the greenback, indicating a degree of risk appetite in markets.

I think it's premature to signal all-clear, but bank stocks should rally on the news. During a press conference, UBS Chair Colm Kelleher announced that Credit Suisse's investment bank, which has thousands of employees worldwide, will wind down.

UBS expects annual cost savings of approximately $7 billion by 2027. Sunday's deal includes 100 billion Swiss francs ($108 billion) in liquidity assistance for UBS and Credit Suisse, as announced by the Swiss central bank.

Credit Suisse shareholders will receive one UBS share for every 22.48 Credit Suisse shares held, equivalent to 0.76 Swiss francs per share for a total consideration of 3 billion francs, UBS said.

Credit Suisse shares had lost a quarter of their value last week, and the bank was forced to tap $54 billion in central bank funding to recover from scandals that have undermined confidence.

Under the deal with UBS, some Credit Suisse bondholders are major losers. The Swiss regulator decided that Credit Suisse bonds with a notional value of $17 billion will be valued at zero, angering some of the holders of the debt who thought they would be better protected than shareholders in a rescue deal announced on Sunday.

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