UBS Takes Over Credit Suisse: Depositors Protected, Shareholders Suffer Losses, Bondholders Wiped Out

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UBS Takes Over Credit Suisse: Depositors Protected, Shareholders Suffer Losses, Bondholders Wiped Out

In an unprecedented move, UBS has taken over Credit Suisse for a fraction of its value, with shareholders set to lose big while depositors remain protected. The deal comes after Credit Suisse experienced a crisis of confidence, which led to considerable outflows of client funds. To prevent further damage to the Swiss and international financial markets, the Swiss federal government, the Swiss Financial Market Supervisory Authority FINMA, and the Swiss National Bank urged UBS to take over Credit Suisse.

Under the terms of the deal, Credit Suisse shareholders will receive one UBS share for every 22.48 Credit Suisse shares, valuing the deal at just CHF 3 billion ($3.24 million). This is about one-third of Credit Suisse's capitalization at the close of trading on Friday. The Swiss government said it would legislate to allow the deal to proceed without shareholder approval.

Depositors will be fully protected, while bondholders will be largely wiped out. In an effort to ensure that both banks have access to the necessary liquidity, the Swiss central bank is providing substantial liquidity assistance through a loan of up to CHF 100 billion ($108 billion). This loan will be backed by a federal default guarantee.

UBS will take over Credit Suisse in full, triggering a complete write-down of the nominal value of all AT1 shares of Credit Suisse in the amount of around CHF 16 billion ($17.28 billion), and thus an increase in core capital. For certain bondholders, this was initially welcomed, but it later became clear that AT1 bondholders would be wiped out.

For Credit Suisse customers, particularly depositors, the takeover comes as a relief. All bank services will remain available without interruption, including accounts, security accounts, counters, ATMs, e-banking, debit and credit cards.

The takeover will result in a larger bank, for which the current regulations require higher capital buffers. FINMA said it will grant 'appropriate transitional periods' for these to be built up. FINMA welcomes the takeover solution and the measures taken by the Swiss Confederation and the Swiss National Bank SNB, saying that the transaction and the measures taken will ensure stability for the bank's customers and for the financial centre.

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