US Federal Reserve gives nod to acquisition of US subsidiaries of Credit Suisse by UBS

UBS-Credit Suisse merger: The US Federal Reserve on Friday approved UBS Group AG taking over US subsidiaries of Credit Suisse Group. The US Fed said that the UBS Group had sought its approval to the deal on March 22.

As part of the deal, UBS will provide the Fed with “an implementation plan” for combining the US businesses of the two firms. The plan will be updated quarterly and will include UBS’ obligations to comply with more stringent “enhanced prudential standards”, the Fed said on Friday. 

In a statement, the US Fed said the plan will include more stringent requirements including liquidity standards for the bank, due to the increased size of the institution. As per rules, the US central bank is required to conduct a review of bank mergers when a bank with more than $250 billion of total assets purchases any voting shares of a company with assets of $10 billion or more.

Last month, after the sudden collapse of US-based Silicon Valley Bank, investors lost confidence in Credit Suisse, which is Switzerland’s largest bank. In a matter of few days, Swiss authorities announced that UBS would buy Credit Suisse to contain further banking turmoil after the global lender had come to the brink of collapse. UBS agreed to buy Credit Suisse for 3 billion Swiss francs ($3.3 billion), a fraction of its earlier market value.

UBS has said it expects the deal to create a business with more than $5 trillion in total invested assets. Under the takeover deal, holders of Credit Suisse AT1 bonds will get nothing, while shareholders, who usually rank below bondholders in compensation terms, will receive $3.23 billion.

Besides the US, UBS secured temporary approval from European Union antitrust regulators earlier this month but still needs to seek clearance under EU merger rules. The Bank of England has approved the takeover in the United Kingdom, according to a report in Reuters.

Earlier this month, UBS Chairman Colm Kelleher said that the unexpected takeover of rival Credit Suisse a significant milestone for Switzerland and for the global financial industry, which carries a “huge amount of risk”.  

Addressing the annual shareholder meeting on April 5, Kelleher said that the takeover will take at least three to four years to take shape, excluding Credit Suisse’s non-core investment bank portfolio, which will have more than $5 trillion in total invested assets.  

Describing the transaction as "the first merger of two globally systematically important banks," Kelleher said the takeover "means a new beginning and huge opportunities ahead for the combined bank and for the Swiss financial center as a whole." 

“Having a clear vision and a sound strategy is important….This transaction is the first merger of two global systemically important banks. This is not in any way an easy deal to do and brings with it execution risk,” Kelleher said.  

A day before, Credit Suisse Chairman Axel Lehmann, while addressing the last AGM of the flagship bank, apologised to the shareholders for failing to contain the crisis, which led to its closure. In an emotional speech at Credit Suisse's last annual general meeting, chairman Axel Lehmann spoke of being caught off guard, pain, bitterness, accumulated scandals, and the grief that remains.

(With Reuters inputs)

Also read: 'Whole thing about Adani was overblown by Hindenburg,' says Mobius Capital’s Mark Mobius

Also read: James Murdoch's Bodhi Tree slashes planned investment in Reliance-backed Viacom18

Also read: Elon Musk plans AI startup to rival OpenAI, says report