UBS agrees to buy Credit Suisse for more than $2 billion

UBS has agreed to buy smaller rival Credit Suisse, after raising its offer to more than $2 billion.

According to the offer that was announced on Sunday morning at a price of 0.25 francs per share to be paid by UBS, a much lower price than Credit Suisse’s closing price on Friday of 1.86 francs.

They added that UBS also insisted on a fundamental change that would void the deal if credit default margins jumped.

There was limited communication between the lenders and the terms of the deal were severely affected by the SNB’s intervention, according to the sources, who added that the US Federal Reserve has given its approval for the deal to advance.

While the current terms value Credit Suisse shares at up to $1 billion, this figure does not reflect the additional allocations that the Swiss National Bank will take to ensure the deal is completed.

The two sides have been in discussions with regulators since Wednesday, when Credit Suisse asked the Swiss National Bank to provide it with an emergency credit line of CHF50 billion ($54 billion).

When that support failed to stem the decline in its share price and panicked customers from withdrawing their money, the central bank stepped in to force the merger after becoming concerned about the viability of the country’s second-largest lender.

Deposit outflows from Credit Suisse topped 10 billion francs a day late last week, the Financial Times reported.

Customers withdrew 111 billion Swiss francs from the group in the last three months of last year.

On Saturday night, the Swiss Cabinet met at the Finance Ministry for a series of presentations from government officials, the Swiss National Bank, market regulator Finma, and representatives from the banking sector.

The Swiss government is preparing emergency measures to speed up the takeover and plans to introduce legislation that goes beyond the normal six-week consultation period required for UBS shareholders so the deal can be closed immediately.

The framework for the deal was designed by Swiss regulators to provide maximum stability to the country’s banking system, people briefed on the matter said.

The Swiss authorities have already obtained prior approval from relevant regulators in the US and Europe who are expected to release coordinated data today.

UBS would significantly shrink Credit Suisse investment bank, so that the combined entity would make up no more than a third of the combined group.

The UBS group is seeking concessions and protection from the government, in particular from any pending legal cases and regulatory investigations in Credit Suisse that may lead to fines or losses, according to the Financial Times.

UBS also wants to be allowed to phase in any additional demands it might face under the global capital rules that govern the world’s largest banks.

The Swiss National Bank, UBS and Credit Suisse declined to comment.

Talks to solve the crisis of confidence in Credit Suisse face major obstacles, and 10,000 jobs may have to be cut if the two banks are merged.