Can Credit Suisse merger agreement with UBS have positive influence on Investor Sentiment?

Key Highlights:

1. Credit Suisse signed a merger agreement with UBS.

2. As per the agreement, all Credit Suisse shareholders will obtain 1 share in UBS for 22.48 shares in Credit Suisse.

3. UBS is likely to appoint key personnel to Credit Suisse as soon as legally possible.

Last week, Credit Suisse's share fall was among the most discussed topics after the Company posted weak FY2022 results, and also its biggest shareholder, The Saudi National Bank denied further assistance. On 16 March 2023, Credit Suisse, in its press release, stated that it is taking decisive action to pre-emptively strengthen its liquidity by aiming to exercise its option to borrow from the Swiss National Bank (SNB) up to CHF 50 billion under a Covered Loan Facility and a short-term liquidity facility, which are fully collateralised by high-quality assets. It also announced offers by Credit Suisse International to repurchase certain OpCo senior debt securities for cash of up to ~CHF 3 billion. Credit Suisse is getting attention this week because of the recent merger agreement news with UBS. Let's know this in detail.

Merger Agreement with UBS

On 19 March 2023, following the intervention of the Swiss Federal Department of Finance, the Swiss National Bank, along with the Swiss Financial Market Supervisory Authority FINMA (FINMA), Credit Suisse signed a merger agreement with UBS. Under this agreement, all Credit Suisse shareholders will obtain 1 share in UBS for 22.48 shares in Credit Suisse. Also, until the consummation of the merger, Credit Suisse will continue its business in the ordinary course and implement its restructuring measures in collaboration with UBS. The Swiss National Bank will grant Credit Suisse access to facilities offering considerable liquidity. Pursuant to the emergency ordinance issued by the Swiss Federal Council, the merger can be implemented without shareholders' approval. The consummation of the merger remains conditional on customary closing conditions.

What Next?

For the purpose of continuous integration of Credit Suisse into UBS, UBS is likely to appoint key personnel to Credit Suisse as soon as legally possible. Meanwhile, Credit Suisse will continue to operate in the ordinary course of business and implement its restructuring measures in collaboration with UBS. At the same time, UBS has stated its confidence that the employment of Credit Suisse’s staff will be continued.

Investor Sentiment

Credit Suisse Bank is a 167-year-old bank and the second-largest lender in Switzerland was in deep trouble in 2022. It was also pointed out in the Company's annual report released on 14 March 2023. Credit Suisse is also one of the biggest financial institutions in the world.

Credit Suisse news was significant as this bank is much more globally interconnected. One of the key factors impacting the result was the rising interest rate. Most Central Bank's around the world increased interest rates to slow down inflation and cool the global economy. However, the rising interest rate left many banks vulnerable. As a result, the financial sector worldwide is experiencing massive sell-offs.

What can we expect now?

Even though Credit Suisse announced the weak financial result in 2022, Switzerland is still not at risk of recession, as pointed out in the press release on 15 March 2023 by Credit Suisse. The economists at Credit Suisse expect that the GDP growth in 2023 will be 0.8% compared to 2.1% in 2022. With inflation set to remain above the target range until mid-2023, the Swiss National Bank is likely to raise key interest rates to 2.25% overall.

The merger agreement between Credit Suisse and UBS can positively impact investor sentiment. As per UBS, the combination is projected to create a business with over US$5 trillion in total invested assets and sustainable value opportunities. It will further support UBS's position as the top Swiss-based global wealth manager with over US$3.4 trillion in invested assets on a combined basis, operating in the most striking growth markets.

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