A sign on the roof of the headquarters of Credit Suisse Group AG in Zurich, Switzerland, Thursday, March 16, 2023. Credit Suisse has appealed to the Swiss National Bank for up to 50 billion francs ($54 billion) and offered to buy back the debt, seeking to stem a crisis of confidence that has sent shockwaves throughout the global financial system. Photographer: Francesca Volpi/Bloomberg via Getty Images

Francesca Volpi | Bloomberg | Getty Images

UBS agreed to buy off its beleaguered rival Swiss credit for 3 billion Swiss francs ($3.2 billion) on Sunday, with Swiss regulators playing a key role in the deal as governments sought to stem a contagion threatening the global banking system.

“With the takeover of Credit Suisse by UBS, a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation,” reads a statement from the Swiss National Bank, which notes that the central bank worked with the Swiss government and the Swiss Financial Market Supervisory Authority to bring together the country’s two largest banks.

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Under the terms of the agreement, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they own.

The Swiss National Bank has pledged a loan of up to 100 billion Swiss francs ($108 billion) to support the takeover. The Swiss government has also granted a guarantee to assume losses of up to 9 billion Swiss francs of certain assets above a predefined threshold “in order to reduce any risk for UBS”, said a separate statement from the government.

“This is a business solution, not a bailout,” Karin Keller-Sutter, Switzerland’s finance minister, told a news conference on Sunday.

The UBS deal was scrambled ahead of Monday’s reopening of markets after Credit Suisse shares posted their worst weekly decline since the start of the coronavirus pandemic. The losses came despite a new loan of up to 50 billion Swiss francs ($54 billion) granted by the Swiss central bank last week, in a bid to halt the slide and restore confidence in the bank.

Credit Suisse had already grappled with a series of losses and scandals, and in the past two weeks sentiment has been shaken again as US banks reeled from the collapse of Silicon Valley Bank. and Signature Bank.

US regulators’ support for uninsured deposits at failing banks and the creation of a new funding facility for struggling financial institutions have failed to stem the shock and threaten to envelop more banks in the US. United and abroad.

Credit Suisse Chairman Axel Lehmann told the press conference that the financial instability caused by the collapse of US regional banks hit the bank at the wrong time.

Despite regulators’ involvement in the pairing, the deal gives UBS the autonomy to manage the acquired assets as it sees fit, which could mean significant job cuts, sources told CNBC’s David Faber .

Credit Suisse’s scale and potential impact on the global economy is far greater than regional US banks, which have been lobbying Swiss regulators to find a way to bring the two largest financial institutions closer to the country. Credit Suisse’s balance sheet is about twice as large as Lehman Brothers’ when it collapsed, at about 530 billion Swiss francs at the end of 2022. It’s also much more globally interconnected, with multiple international subsidiaries – which makes orderly management of the Credit Suisse situation even more important.

Bringing the two rivals together was not without difficulties, but the pressure to avoid a systemic crisis finally prevailed. UBS originally offered to buy Credit Suisse for around $1 billion on Sunday, according to multiple media outlets. Credit Suisse reportedly balked at the offer, arguing it was too low and would hurt shareholders and employees, people with knowledge of the matter told Bloomberg.

On Sunday afternoon, UBS was in talks to buy the bank for ‘substantially’ over a billion Swiss francs, sources say told CNBC’s Faber. He said the price of the deal rose throughout the day’s negotiations.

Credit Suisse lost around 38% of its deposits in the fourth quarter of 2022 and revealed in its delayed annual report early last week that outflows have yet to reverse. It reported a net loss of 7.3 billion Swiss francs for the year 2022 and expects another “substantial” loss in 2023.

The bank previously announced a massive strategic overhaul in a bid to address these chronic issues, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.

— CNBC’s Katrina Bishop contributed to this report.

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