UBS agrees to take over troubled rival Credit Suisse

UBS has agreed to take over its troubled Swiss rival Credit Suisse, the president of Switzerland announced this morning, following urgent talks aimed at sparing the embattled bank from a bloodbath when the markets reopen.

The two largest banks in the wealthy Alpine nation famed for its banking prominence have been in negotiations throughout the weekend.

Swiss President Alain Berset said the government was confident that the takeover was the "best solution" for "restoring confidence that has been lacking the financial markets recently".

Credit Suisse, the country's second-biggest bank after UBS, "has been a source of worry for several months", he said, adding that turbulence on the markets in recent days showed that "the necessary confidence" in the bank could not be restored.

Berset was speaking alongside UBS chairman Colm Kelleher and his Credit Suisse counterpart Axel Lehmann at a press conference in the capital Bern.

Finance Minister Karin Keller-Sutter told the press conference that bankruptcy for Credit Suisse could have caused "irreparable economic turmoil".

The Financial Times newspaper, which was the first on Friday to report the prospect of Switzerland's biggest bank swallowing up Credit Suisse, said UBS had agreed to buy it for US$2 billion, with its fellow Zurich-based lender having spurned an earlier offer of US$1 billion (NZ$1.6 billion).

The FT said shareholders would get 0.50 Swiss francs (NZ$0.86) per share, with the deal to be done on Sunday before the markets open in Asia.

After suffering heavy falls on the stock market last week, Credit Suisse's share price closed Friday at 1.86 Swiss francs (NZ$3.21), with the bank worth just over US$8.7 billion (NZ$13.91 billion).

UBS was being urged by the authorities to get a deal over the line before the stock exchange reopens on Monday, in a bid to reassure investors and avoid a wave of contagious panic on the markets.

The Swiss authorities felt they had no choice but to push UBS into overcoming its reluctance, due to the enormous pressure exerted by Switzerland's major economic and financial partners, fearing for their own financial centres, said Blick newspaper.

A merger of this scale -- involving swallowing up all or part of a bank arousing growing investor unease -- would normally take months.

While under Swiss rules, UBS would typically have to consult shareholders over six weeks, it could use emergency measures to skip the consultation period and a shareholder vote, the FT said, citing unnamed sources.

Like UBS, Credit Suisse is one of 30 banks around the world deemed to be Global Systemically Important Banks - of such importance to the international banking system that they are considered too big to fail.

But the market movement seemed to suggest the bank was being perceived as a weak link in the chain.

"We are now awaiting a definitive and structural solution to the problems of this bank," French Finance Minister Bruno Le Maire told Le Parisien newspaper.

Amid fears of contagion after the collapse of two US banks, Credit Suisse's share price plunged by more than 30% on Wednesday to a new record low of 1.55 Swiss francs. That saw the SNB step in overnight with a US$54 billion lifeline.

After recovering some ground Thursday, its shares closed down eight percent on Friday at 1.86 Swiss francs as the Zurich-based lender struggled to retain investor confidence.

In 2022, the bank suffered a net loss of US$7.9 billion (NZ$12.6 billion) and expects a "substantial" pre-tax loss this year.

Credit Suisse, the country's SNB central bank and the Swiss financial watchdog FINMA all declined to comment on the negotiations when contacted by AFP.

The SonntagsZeitung newspaper called it "the merger of the century".

"The unthinkable becomes true: Credit Suisse is about to be taken over by UBS," the weekly said.

The government, FINMA and the SNB "see no other option", it claimed.

"The pressure from abroad had become too great - and the fear that the reeling Credit Suisse could trigger a global financial crisis," it said.

David Benamou, chief investment officer of Paris-based Axiom Alternative Investments, said: "The Credit Suisse management, even if forced to do so by the authorities, would only choose (a UBS takeover) if they have no other solution."