UBS Falls on Deal to Buy Rival Credit Suisse

UBS (UBS:US) shares are trading sharply lower on Monday after the Swiss bank agreed on a deal to acquire its smaller rival Credit Suisse (CS:US) in a deal that was heavily influenced by Swiss authorities. 

UBS shares were trading 14% lower at the open while Credit Suisse stock was down about 60% as the takeover price was agreed at a significant discount relative to Friday’s closing price.

UBS agreed to pay CHF 3 billion ($3.24 billion) to fully integrate Credit Suisse into its operations, however, the authorities had to provide significant incentives to UBS for it to consider the deal. The government will provide $9 billion to backstop potential losses at UBS from the integration while the Swiss National Bank (SNB) will inject up to $100 billion of liquidity into UBS.

The Swiss authorities were racing to complete the deal before markets opened in Asia on Sunday. According to WSJ, Credit Suisse was facing $10 billion in customer outflows a day last week, which made the already difficult situation much worse and more urgent.

Hours after the deal was announced, major central banks announced a coordinated action to increase U.S. dollar liquidity. The U.S. Federal Reserve, Bank of Canada, Bank of England, Bank of Japan, SNB, and the European Central Bank said they will launch daily operations to boost liquidity and support the global banking system.

Two Congress members were trading UBS shares this year. Democrat Ro Khanna bought $15,000 - $50,000 worth of shares on February 10. More interestingly, Congresswoman Mikie Sherrill sold $250,000 - $500,000 worth of UBS shares on March 03, just a few days before the Credit Suisse drama started to unravel.