Swiss banks merge amid global turmoil

The merger announced Sunday by Swiss banking giants UBS and Credit Suisse comes while the global financial system is on uncertain footing.

UBS will buy rival Credit Suisse for 3 billion Swiss francs ($3.23 billion) and agreed to assume up to $5.4 billion in losses in a forced merger engineered by Swiss authorities to avoid further upheaval in global banking.

Swiss President Alain Berset called the announcement "one of great breadth for the stability of international finance. An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system."

In a brief joint statement Sunday, US Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell said: "We welcome the announcements by the Swiss authorities today to support financial stability. The capital and liquidity positions of the US banking system are strong, and the US financial system is resilient. We have been in close contact with our international counterparts to support their implementation."

In a global response not seen since the height of the COVID-19 pandemic, the Fed said it had joined with central banks in Canada, England, Japan, the European Union and Switzerland to enhance market liquidity.

Stock futures in the three major US indices rose slightly on the news Sunday.

The Fed will meet this week amid much speculation ahead of its interest rate announcement Wednesday over whether recent upheaval in the banking industry will lead to a pause in rate hikes.

The recent collapse of Silicon Valley Bank and Signature Bank and the $30 billion big-bank bailout of First Republic Bank could be factors as the central bank continues its battle against persistent inflation.

James Tabacchi, chief executive of broker-dealer South Street Securities, said he believes the Fed eventually will need to raise its benchmark rate above 6 percent, but maybe not so fast. The current fed funds rate is 4.5-4.75 percent.

"I am an inflation hawk. But what will it hurt to wait a month and say, 'We'd like to see the market stabilize?'" Tabacchi said. "I think the Fed should pause (interest rate increases)."

The US Federal Deposit Insurance Corp (FDIC) also is planning to restart the sale process for Silicon Valley Bank, with the regulator seeking a potential breakup of the lender, according to people familiar with the matter.

US Senator Elizabeth Warren, a Massachusetts Democrat, tweeted on Sunday: "I'm calling for an independent investigation into the recent bank and regulatory failures. The Inspectors General for the Treasury, Fed, and FDIC should deliver a preliminary report to Congress in 30 days. Regulators and Congress must act quickly to prevent further economic harm."

Warren's tweet included an image of a letter that she sent Saturday to inspectors at the three agencies.

Some skepticism about recent events at banks could be found on social media.

"When they tell us that everything is A-okay, but Credit Suisse just gets bought out and taken over by UBS and the (Fed) has now given banks in the US more money than they did at the worst part of the great recession ... yep ... everything is just fine in the financials ... NOT!" tweeted "Stock Moe" to 26,000 followers.

Karin Keller-Sutter, the Swiss finance minister, said the bankruptcy of a globally important bank — Credit Suisse is one of 30 deemed systemically important — would have created irreparable consequences for financial markets.

"If one of the top 30 Globally Systemically Important banks is only worth $1bn & has to be rescued over a weekend, how much are the remaining 29 worth?" tweeted "Red Knight".

UBS Chair Colm Kelleher said during a news 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.

Officials have been racing to rescue the 167-year-old Credit Suisse, among the world's largest wealth managers, after a brutal week saw the second- and third-largest US bank failures in history.

The Swiss Federal Council, a seven-member governing body that includes Berset, adopted an emergency ordinance that allows the merger to go through without the approval of shareholders.

"We noted that the outflows of liquidity and the volatility of the markets demonstrated that necessary confidence could no longer be restored, and a rapid solution guaranteeing stability was essential," Berset said.

Kelleher, the UBS chairman, highlighted his bank's "conservative risk culture" –- a subtle swipe at a Credit Suisse culture that's known for riskier gambles for larger returns.

Keller-Sutter said the council "regrets that the bank, which was once a model institution in Switzerland and part of our strong location, was able to get into this situation at all".

While smaller than its Swiss rival UBS, Credit Suisse still has considerable influence, with $1.4 trillion assets under management. The firm has trading desks around the world, caters to the rich and wealthy through its wealth management business, and is a major adviser for global companies on mergers and acquisitions.

Notably, Credit Suisse did not need government assistance in 2008 during the financial crisis, while UBS did.

Despite the banking disarray, the European Central Bank on Thursday approved a half-percentage point increase in interest rates to try to curb high inflation, saying Europe's banking sector is "resilient", with strong finances.

ECB President Christine Lagarde said the banks "are in a completely different position from 2008" during the financial crisis, partly because of stricter government regulation.

Agencies contributed to this story.