UBS will take over its smaller rival Credit Suisse, the Swiss central bank has confirmed in an effort to avoid further market-shaking turmoil.
The Financial Times reported on Sunday that UBS offered to pay $2bn (£1.2bn) for the embattled bank.
Swiss President Alain Berset, who did not specify a value of the deal, called Sunday night’s 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.”
UBS will pay more than 0.50 francs ($0.5401) a share in its own stock, far below Credit Suisse’s closing price of 1.86 francs on Friday, the FT reported, citing sources.
The Swiss National Bank has agreed to offer a $100 billion liquidity line to Credit Suisse as part of the deal, the FT added, citing two people familiar with the matter.
According to the report, UBS has agreed to a softening of a material adverse change clause that would void the deal if its credit default spreads jump.
Credit Suisse and UBS declined to comment.
Swiss leaders held a news conference on Sunday night following several media reports.
The Federal Council, the seven-member governing body that includes Mr Berset, announced to journalists UBS is acquiring Credit Suisse in a potential deal brokered by the Swiss government.
The 167-year-old 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.
It was earlier reported by Sky News that the Bank of England would not object to the takeover.
The Swiss central bank’s $54 billion loan to Credit Suisse has failed to halt the slide in its share price which is down by 10 per cent.
Coupled with last week’s collapse of Silicon Valley Bank, whose UK arm had to be taken over by HSBC for the nominal sum of £1, the crisis engulfing Credit Suisse has fuelled anxiety about contagion in the international banking system.
The Bank of England declined to comment on its position.
Credit Suisse, which employs 5,000 people in the UK, is categorised by the global Financial Stability Board as one of just 30 “systemically important” lenders in the global banking system. Any deal may also result in significant job losses.
Two major banks in the US also collapsed in a turbulent week for the industry.
Meanwhile, at least two major banks in Europe are examining scenarios of contagion in the region’s banking sector and are looking to the Federal Reserve and the European Central Bank for stronger signals of support, two senior executives close to the discussions told Reuters.
The two banks have held their own internal deliberations on how soon the ECB should weigh in to highlight banks’ resilience, specifically their capital and liquidity positions, the people said.
A focus of these internal discussions is whether such statements might create even more alarm if they are made too soon, the people said.
The executives said that their banks and the sector are well capitalised and liquidity is strong, but they fear that the crisis of confidence will sweep up more lenders.
One of the executives said the Federal Reserve might have to move first as the failures of Silicon Valley Bank and Signature Bank in the United States earlier this month triggered the concerns in Europe.
The ECB declined to comment. The Fed had no comment.
