In this YouTube explainer, the presenter confirms the official agreement for UBS to acquire Credit Suisse for approximately $3.25 billion. The video walks through the deal structure—UBS will issue about $0.76 of its own share per Credit Suisse share, valued at roughly $3 billion, well below Credit Suisse’s pre‑deal market price. The Swiss National Bank will provide a 100 billion‑franc liquidity line backed by a federal default guarantee, while the Swiss government offers a loss guarantee of up to 9 billion francs after UBS absorbs the first 5 billion in losses on certain asset portfolios. The presenter then traces the cascade of events that led Credit Suisse into distress, starting with the 2021 Greensill Capital impairment, the 2021 Archegos collapse (a $5.5 billion loss), leadership changes, aggressive restructuring, and massive deposit outflows (over 10 billion francs per day, 111 billion francs withdrawn in the last three months of 2022). The recent context includes the SVB failure, heightened global banking stress, a material weakness in Credit Suisse’s 2022 annual report, and the Saudi National Bank’s withdrawal of support, which together precipitated a sharp share‑price plunge. The video cites statements from Jerome Powell, Janet Yellen, the ECB, and the EU, emphasizing the systemic‑risk concern and the need for swift action. Analyst Mike Mayo’s commentary is highlighted, suggesting the UBS‑Credit Suisse deal could bolster resilience of large U.S. banks and contain localized banking problems. The presenter concludes that the transaction should improve market sentiment by removing a major source of uncertainty, and anticipates a net positive impact on financial stability.
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Okay. Hi everyone. Hope you're doing well. Wanted to jump on to bring you the official confirmation UBS is to buy Credit Suisse. Lots of two-way kind of headlines going around over the last 48 hours about UBS weren't interested, then they were, then potentially BlackRock were going to step in. Then they said they weren't and they denied that, but it has now been official. So let's talk about the deal and also a bit of the context. What some of the major players in the market have said and how the markets might react to this when we get underway on Monday morning. So first things first, let's have a look at the deal. So UBS has agreed to buy Credit Suisse for $3.25 billion. UBS will pay about $0.76 a share in its own stock, and that's worth about $3 billion. And that is significantly below Credit Suisse closing price of 1.86 francs a share on Friday. So it really goes to show what kind of dire straits that CS was in for this transaction to go through. The Swiss National Bank has agreed to offer a 100 billion Swiss franc liquidity line backed by federal default guarantee to UBS as part of the deal, because this was really part of the pushback from UBS initially is what are they going to be exposed to further on down the line. This idea of having guarantees about any further litigation and so forth. That might come on the company themselves and also from the assets that they own. And in the Swiss government, they're also going to provide a loss guarantee of up to 9 billion Swiss francs, but only after UBS has borne the first 5 billion of losses on certain portfolios of assets. So that was the kind of compromise for this deal, it seems, to get over the line. Let's just have a quick look though, because this certainly hasn't come out of the blue. It's really been a snowball effect of many factors that have driven Credit Suisse into this situation, and it really began back in March of 2021. You'll probably remember this situation specifically. It was triggered by a $10 billion impairment in the collapse of UK's Greensill Capital. That was really when Credit Suisse really came into the spotlight and their share price came under some significant pressure. And then it was followed up, of course, because Credit Suisse amongst lots of other major financial institutions were heavily hit by the Archicost situation. CS themselves had a $5.5 billion loss associated with the collapse of the US investment fund Archegos, whose manager, as we can see here, pleaded guilty to wire fraud years earlier. Now, a couple of other things here. Looking at the stock price then from really the beginning of 2022. So post those two big major events which weighed on their share price, we then had a change in leadership at the company. So Ulrich Körner came on as the CEO and really took the idea of trying to aggressively restructure the firm. The share price actually dipped, um, going into the summer of last year, and it forced the CEO to reassure on capital and liquidity given the run on the bank in itself. And this was going through a significant plan of restructuring at that point in time, and that actually was met somewhat favorably, but only for about a period of 5 or 6 weeks before then shares came under pressure once again. One of the real things that stood out here during this period at the end of last year, so this, this movement through 4 to 3 Swiss francs in the share price of Credit Suisse was that deposit outflows from CS topped 10 billion Swiss francs a day. That was late last week and customer— customers withdrew around 111 billion Swiss francs from the group in the final 3 months of last year. So this was already really happening, these customer deposit outflows, and this is why they were so unattractive for other banks really to step in and take them at this point. Now then, you had— fast forward to where we're at at the moment— and SVB, Silicon Valley Bank, which we all know of course now has really triggered this massive shift in global financial markets and this expectation, chiefly buoyed on the back of course very aggressive interest rate hikes and then how their balance sheet, very one-dimensionally at SVB, was shaped and that caused their immediate collapse and has seen many other US regional banks fall victim to this, as well as now markets pricing in quite heavy rate cuts to come in subsequent meetings beyond the next one or two. The other things then that came out that really start to trigger this latest run of events was that Credit Suisse's 2022 annual report. This was last Tuesday identified material weakness in internal controls over financial reporting. And then the double hit that they took was then the Saudis came in, who were kind of the white knight previously to come in when no one else would to backstop their— the investment into that declining performance we were seeing from Credit Suisse. And then the Saudi National Bank came out and said they could not provide Credit Suisse with any further financial assistance. And that came on Wednesday. And that twofold effect really saw the share price get hammered. And that was when they fell about 30% in one trading day last week. And all of the other European financials as well getting hit very aggressively across the board. It prompted Credit Suisse to announce it was taking decisive action to borrow 50 billion Swiss francs. And this is really what led then to the situation as to the stock price bouncing before then decreasing once again towards the end of this week. And all this dealmaking happening over the weekend. Now, what have other parties said? Well, Jerome Powell and Janet Yellen have already given a statement. This is quite typical whenever you see something that could, well, form a systemic threat to the financial system. This isn't just a Swiss thing. All other major parties, so i.e., central banks and likes of the UK, the ECB, the Fed, will want to come out and reassure markets. Particularly important that this deal got done this weekend ahead of the market open Sunday night going into Monday's trade. And so what's happened here is they've said in a joint statement, Yellen and Powell, that they welcome announcements by the Swiss authorities to support financial stability. The EU have already come out and the ECB have said that they also welcome swift action and the decisions taken by the Swiss authorities. So I guess what happens next? And actually I saw a good comment out of the equity analyst Mike Mayo, Wells Fargo, very well followed. And he said in his note that the stronger resilience of large US banks is being tested given global stress. A UBS acquisition of Credit Suisse though should help to alleviate that stress and help global banks, and he said particularly the likes of Citi and JP Morgan. He added that there is still a chance that bank problems can remain localized if the weakest banks get shored up, whether in the US or in the most recent cases here in Europe. And I actually think that this is a good positive solution for financial markets, the swift action that's been taken both to quell that banking crisis that we saw develop on the back of the regional banks in the US and then the demise of SVB. You saw the central bank's balance sheet in the US absolutely jump back up. So almost the reversal of quantitative tightening. It isn't technically QE, but again, they were spending somewhere near the region of $300 billion in order to backstop what was a short-term crisis in markets. And now you've had this latest action taken in Europe. I think this is a positive thing where they're trying to get ahead of any further kind of snowball effect of anxieties and fear in the markets. And so actually, let's see, a lot of information still to come out. This is just broken, but overall I'd probably anticipate that this is going to be a net positive for sentiment in order that this situation now has been addressed. The authorities have basically stepped in and the deal now— the UBS has come in and bought Credit Suisse for 3.25 $1.5 billion. Hopefully that was helpful. Have a good week ahead and I'll catch you for the next video. Take care.
