US authorities give green light to UBS takeover of Credit Suisse

The Swiss-brokered deal needs to receive the blessing of various international antitrust operators before being fully completed. Keystone / Andrew Harnik

The Federal Reserve’s Board of Governors approved on Friday UBS Group AG’s buyout of the US subsidiaries of Credit Suisse, clearing another major hurdle for the completion of the Swiss-brokered rescue deal.

UBS has committed to give the US central bank an implementation plan for combining its US business and operations with those of Credit Suisse within three months of consummating the deal, the Fed’s Board said in a statement. The plan will include more stringent requirements including liquidity standards for the bank, due to the increased size of the institution, the statement said.

The US central bank is required to conduct a review of bank mergers when a bank with more than $250 billion (CHF223 billion) of total assets purchases any voting shares of a company with assets of $10 billion or more.

UBS had requested the Fed’s approval of the merger on March 22, the Fed said.

After years of scandal and losses, 167-year-old Credit Suisse came to the brink of collapse before Zurich-based rival UBS rode to the rescue with a merger engineered and bankrolled by the Swiss authorities last month. UBS agreed to buy Credit Suisse for 3 billion Swiss francs ($3.3 billion), a fraction of its earlier market value.

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The Swiss authorities and UBS Group AG have been racing to close the takeover of Credit Suisse Group AG within as little as a month, in an effort to retain the lender’s clients and employees, Reuters previously reported.

UBS secured a 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, people familiar with the process told Reuters.

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.

The Fed subjects firms with more than $700 billion in assets, or more than $75 billion in cross-jurisdictional activities, to heightened supervision, including annual company-run stress tests and increased liquidity standards.

International backing

On Friday, Swiss Finance Minister Karin Keller-Sutter said in Washington that “it was recognised at the international level that the solution found [by Switzerland] had helped to avoid an international financial crisis”. Keller-Sutter was in the US capital for meetings of the International Monetary Fund and the World Bank. She also commented on the rejection of the deal by the Swiss parliament this week, which she said would have “no consequence” on the takeover being completed.

Swiss National Bank President Thomas Jordan also said on Friday that his counterparts had welcomed the fast action of the Swiss government, which had prevented the Alpine Nation becoming “the first domino in a systemic crisis”. For the BNS boss, the goal now is to successfully complete the merger of the two banks: “only this will create the necessary stability”, he said. At that point, laws around “too big to fail” banks can be revised and updated to reflect lessons learned.