UBS will buy rival Swiss bank Credit Suisse for 3 billion Swiss francs ($3.23 billion) and assume up to $5.4 billion in losses, in a shotgun merger engineered by Swiss authorities that won applause from other central bankers keen to avoid further market-shaking turmoil.
In a sign of a coordinated global response, the European Central Bank vowed to support euro zone banks with loans if needed, adding the Swiss rescue of Credit Suisse was "instrumental" for restoring calm.
"The euro area banking sector is resilient, with strong capital and liquidity positions," the ECB said. "In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy."
U.S. Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen said they welcomed the announcement by the Swiss authorities to support financial stability.
Swiss regulators were forced to step in and orchestrate a deal to prevent a crisis of confidence in Credit Suisse spilling over into the broader financial system. The deal is expected to close by the end of 2023.
The Bank of England welcomed moves by Swiss authorities to broker the takeover and said the British banking system was well-funded.
The Swiss banking marriage follows efforts in Europe and the United States to support the sector since the collapse of U.S. lenders Silicon Valley Bank and Signature Bank.
It was not yet clear if the deal is enough to restore trust in lenders around the world. The first indication could come when stock markets open in a few hours in Asia, Australia and New Zealand.
Early traded prices of the euro suggested the single currency was rising on the back of the news. The euro was last quoted at around $1.0674, marginally higher on the day.
“It seems like a very large and decisive intervention," said Brian Jacobsen, senior investment strategist at Allspring Global Investments. "Provided markets don’t sniff out other lingering problems, I’d think this should be pretty positive. Governments are intent on snuffing out the spark of contagion before the flames get out of control."
The U.S. Federal Deposit Insurance Corp (FDIC) is planning to relaunch the sale process for Silicon Valley Bank, with the regulator seeking a potential breakup of the lender, according to people familiar with the matter.
UBS Chair Colm Kelleher said during a press conference that it will wind down Credit Suisse's investment bank, which has thousands of employees worldwide. UBS said it expected annual cost savings of some $7 billion by 2027.
The Swiss central bank said Sunday's deal includes 100 billion Swiss francs ($108 billion) in liquidity assistance for UBS and Credit Suisse.
Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to 0.76 Swiss francs per share for a total consideration of 3 billion francs, UBS said.
Officials have been racing to rescue the 167-year-old bank, among the world's largest wealth managers, after a brutal week saw the second- and third-largest U.S. bank failures in history. As one of 30 global banks seen as systemically important, a deal for Credit Suisse could ripple through global financial markets.
At least two major banks in Europe are examining scenarios of contagion possibly spreading in the region's banking sector and looking to the Federal Reserve and the European Central Bank to step in with stronger signals of support, two senior executives with knowledge of the discussions said.
The fallout from the crisis of confidence in Credit Suisse and the failure of the two U.S. banks could ripple through the financial system this week, the two executives separately told Reuters on Sunday.
Credit Suisse shares lost a quarter of their value last week. The bank was forced to tap $54 billion in central bank funding as it tries to recover from scandals that have undermined the confidence of investors and clients.