Swiss bank regulators and the Swiss National Bank needed to make a deal for Credit Suisse to be acquired by a competitor before markets opened in Asia, they got one. UBS will acquire CS for $3 billion, less than half of the troubled bank's $7.873 billion market cap, which is taken after share prices declined 15 percent in 10 days.
These deals no longer seem to happen without a guarantee of course. According to Reuters, the Swiss Government has pledged CHF 160 billion, or $173 billion, in loans and guarantees to support the deal. UBS will be taking on an estimated $5.4 billion in losses acquiring the money losing bank. CS had negative $2.77 earnings per share in 2022.
"This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue," UBS chair Colm Kelleher said in a statement. Holders of Credit Suisse AT1 debt, of which there is about $17 billion outstanding, will be completely wiped out, as UBS plans to write it down.
AT1, "Additional Tier 1", bonds are about a $230 billion market in Europe. They are designed to be converted from debt into equity in the event that a bank comes in danger of breaching its regulatory capital requirement. Under the international central banking accord BASEL III, banks must maintain a minimum Common Equity to Asset ratio of 7 percent, plus any additional charge required as a result of stress testing. AT1 bonds can be converted into common stock if the bank falls below their required ratio. This has been called a "bail-in".
US assets and global bank stocks got a boost as markets opened in Asia. The US 2 year bond yield briefly reached above 4 percent before breaking back to 3.95. S&P 500 futures are up about 0.6 percent.
Japanese Banks Mitsubishi Financial, Sumitomo, and Japan Post are flirting with 1/2 percent gains. Overall, a weaker response than regulators and central bankers around the world are probably hoping for.