Credit Suisse, UBS Merger Complete; Massive Layoffs Expected Next

As the global banking system grapples with navigating uncharted and extremely volatile territory, troubled Swiss bank Credit Suisse has been bought by its rival Swiss bank, in a deal brokered by the Swiss government in an effort to calm investors and customers.

On Sunday, UBS struck a deal to acquire Credit Suisse for about $3.2 billion, marking the end of the rivalry between the two largest Swiss wealth management institutions.

Despite calling the deal attractive to its shareholders, UBS chairman Colm Kelleher did not mince words about the beleaguered Swiss bank.

"This acquisition is attractive for UBS shareholders, but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue," Kelleher said in a statement, Yahoo Finance reported.

"It's a historic day, and a day we hoped would not come," Kelleher added on an analyst call that included UBS CEO Ralph Hamers.

According to the deal, Kelleher will be the chairperson of the combined entity, while Hamers would serve as its chief executive.

UBS expects to cut about $8 billion of annual expenses by 2027.

The two Swiss banks would be provided with up to $108 billion in loans by the Swiss National Bank to facilitate the deal and boost liquidity. The Swiss government would also provide UBS with $10 billion worth of financial guarantee for potential losses from taking over Credit Suisse.

Global financial market regulators welcomed the deal.

U.S. Treasury Secretary Janet Yellen and Federal Reserve Chairperson Jerome Powell said the Credit Suisse acquisition was positive news for the U.S. financial system. Since both Swiss-based banks have operations in the U.S., the Federal Reserve worked with its counterpart, the Swiss National Bank, on the merger.

European Central Bank president Christine Lagarde also cheered on the news while insisting that ECB is always prepared to help banks in trouble.

In a statement, the Swiss National Bank said it welcomed UBS' acquisition of Credit Suisse, saying it would provide financial stability.

"With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation," the Swiss National Bank said, The Street reported.

Swiss Finance Minister Karin Keller-Sutter emphasized that the deal was "not a bailout" of Credit Suisse from its financial woes but rather a "commercial solution" to avoid bankruptcy.

However, Keller-Sutter expressed concern as the deal would likely lead to "many thousands" of layoffs among Credit Suisse employees in Switzerland, as the two banking firms offer similar services and products.

In October 2022, a few months before Credit Suisse fell into a crisis, it had already announced a workforce reduction of about 9,000 jobs. By the end of last year, the company had declared over 50,000 employees across the globe, with 16,000 of its workers in Switzerland. Its balance sheet amounted to half a trillion dollars.

Meanwhile, data from UBS showed that the company has over 74,000 employees, much higher than its acquired bank, with 28% of its workforce based in Switzerland. Its balance sheet amounted to $1.1 trillion in total assets.

Scandals, leadership changes, and losses for many years caused the crisis at Credit Suisse.

The 167-year-old Swiss bank's problems were further exacerbated by investment fund Archegos and Greensill Capital's collapse in 2021, which led to a massive sell-off in Credit Suisse's shares.

The Swiss bank also reported "material weaknesses" in its financial reporting processes in 2021 and 2022.

Following a string of controversies besetting Credit Suisse, Saudi National Bank, the embattled Swiss bank's top backer, announced that it would not invest any more money into Credit Suisse to avoid tripping regulations that would kick in if its stake rose about 10%. The announcement put Credit Suisse's stock shares in a free fall.