On Sunday, UBS made a bid to purchase Credit Suisse for 0.25 francs per share to be paid in shares. According to sources with knowledge of the situation, Credit Suisse, which had a market value of around $8 billion as of Friday, thinks the offer is too low and will harm shareholders and staff members who have deferred stock.
The price of the UBS offer was disclosed on Sunday and was to be paid in shares at a rate of 0.25 francs per share. According to the Financial Times, UBS insisted on a major adverse change clause that would invalidate the agreement if its credit default spreads increased by 100 basis points or more. Credit Suisse was down 8% to 1.86 francs at Friday’s end.
Customers withdrew funds from some transactions with Credit Suisse
Authorities in Switzerland are attempting to mediate an agreement to resolve a crisis at Credit Suisse that, during the last week, sent shockwaves through the world financial system when scared investors ditched its shares and bonds after the failure of several smaller American institutions. Although the market drama poses the danger that clients or counterparties would continue to leave, with possible consequences for the larger sector, the falls were momentarily stopped by a liquidity backstop by the Swiss central bank.
According to persons with knowledge of the situation, Swiss and American regulators have weighed in on the complicated conversations around what would be the first merger of two globally systemically significant banks since the financial crisis. Following a week in which customers withdrew funds and counterparties withdrew from some transactions with Credit Suisse, discussions increased on Saturday. All parties were eager for a solution that could be swiftly implemented.
Reportedly UBS has decided to make the deal
After raising its bid to more than $2 billion, UBS has decided to purchase Credit Suisse, the Financial Times reported on Sunday. According to FT, which cited sources, UBS will pay more than 0.50 francs a share in its own stock, a significant discount from Credit Suisse’s Friday closing price of 1.86 francs.
As per to the FT, which also cited two persons familiar with the situation, the Swiss National Bank has consented to provide Credit Suisse with a $100 billion liquidity line as part of the agreement. The article claims that UBS has consented to a softening of a condition that would nullify the contract if its credit default spreads increased.