M&A Deal Snapshot

UBS / Credit Suisse: A state-brokered rescue merger

Over one weekend in March 2023, UBS agreed to take over Credit Suisse for about CHF 3 billion in shares, backed by state guarantees and a write-down of CHF 16 billion of AT1 capital. We read the structure and what it left behind.

Announced 19 March 20234 min readM&A

UBSCredit Suisse
The one-page editionDownload the SnapshotPDF · A4 · Mar 2023
  • CHF 3bnConsideration, all in shares
  • 1 : 22.48UBS shares per Credit Suisse share
  • CHF 16bnAT1 capital written down
  • CHF 100bnPublic liquidity backstop, maximum
David BaburiHead of Research, Valstron
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Key takeaways

  1. UBS acquired Credit Suisse in an all-share deal worth about CHF 3 billion: one UBS share for every 22.48 Credit Suisse shares, or about CHF 0.76 per share.
  2. The deal rested on state support: a public liquidity backstop of up to CHF 100 billion and a CHF 9 billion federal loss guarantee above a first CHF 5 billion of losses borne by UBS. FINMA ordered the full write-down of about CHF 16 billion of AT1 capital.
  3. UBS completed the acquisition on 12 June 2023 and voluntarily ended both the loss protection and the liquidity backstop on 11 August 2023.

The transaction

AcquirerUBS Group
TargetCredit Suisse Group

Result UBS Group

Key terms
Announced19 March 2023
StructureAll-share takeover; Credit Suisse Group merged into UBS Group
Exchange ratio1 UBS share per 22.48 Credit Suisse shares
Considerationc. CHF 3 billion (c. CHF 0.76 per Credit Suisse share)
AT1 capitalc. CHF 16 billion written down, ordered by FINMA
Loss protectionCHF 9 billion federal guarantee above CHF 5 billion first loss for UBS
LiquidityPublic liquidity backstop of up to CHF 100 billion
Completed12 June 2023
State support ended11 August 2023; UBS paid CHF 40 million for the guarantee
CapitalUBS expected a CET1 ratio of about 14% after closing

Timeline

  1. 19 Mar 2023Takeover agreed over a weekend, with state support
  2. 12 Jun 2023Acquisition completed; last trading day of Credit Suisse shares
  3. 11 Aug 2023UBS ends the loss guarantee and the liquidity backstop

The rationale

By March 2023 Credit Suisse had lost the confidence of clients and markets after years of losses and setbacks, and outflows were accelerating. The Swiss authorities brokered a takeover by UBS rather than resolving a global systemically important bank.

The structure was built for speed. Payment in shares instead of cash, emergency law that kept shareholders from voting, and a state backstop gave UBS comfort on risks it could not fully examine over a weekend.

The AT1 write-down, while shareholders still received UBS shares, reversed the order of loss absorption many bond investors had expected. It became the most contested element of the deal.

The assessment

Price

CHF 3 billion was a fraction of Credit Suisse's book equity. That discount is what made the deal attractive to UBS despite the risks it took on.

Risk transfer

By ending the guarantees after two months, UBS signalled confidence in its own assessment of the Credit Suisse assets. The Confederation reported receipts of around CHF 200 million from the support measures and no losses.

System

The combined bank is far larger relative to the Swiss economy than either bank alone. The policy debate has moved to how much capital UBS must hold.

What to watch

Integration costs and the run-off of non-core assets, the development of Swiss capital rules for systemically important banks, and legal challenges by AT1 holders.

Support and loss absorption (CHF bn, maximum amounts)
100Liquidity16AT19Guarantee5First loss3Price

Source: UBS, CNBC, The TRADE. Not like for like: liquidity and guarantee are maximum facilities.

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