UBS agrees to acquire Credit Suisse for $3.25bn

As part of the deal, Switzerland's central bank would make available a 100bn Swiss franc liquidity line to UBS.

Under the terms of the agreement, should UBS incur in more than 5bn Sfr in losses from Credit Suisse's assets, the Swiss government would shoulder the next 9bn sfr in red ink with UBS taking any losses above that amount.

UBS chairman, Colm Kelleher, said: "This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue.

"We have structured a transaction which will preserve the value left in the business while limiting our downside exposure."

Kelleher also said that Credit Suisse's investment bank would be shrunk, which might scupper plans for a spin-off of CS First Boston.

The tie-up would result in a business with more than $5trn of invested assets and the annual run-rate of cost reductions was seen exceeding $8bn by 2027, by when the transaction would be accretive to UBS while remaining capitalised well above its target of 13%.

UBS also noted that it would benefit from 25bn Sfr of downside protection and an additional 50% downside protection on non-core assets.

Significantly, holders of Credit Suisse's roughly $17.3bn of AT1 or so-called 'bail-in' bonds would be wiped out.

According to Bloomberg, several fund managers were critical of that outcome, arguing that they should rank above shareholders, who had retained some of the value of their shares.

The result was that the value of AT1 bonds issued by other lenders was under pressure on Monday.

Nevertheless, other investors believed such complaints were wide of the mark.

Commenting after the first reports of UBS's proposed offer of up to $1bn for Credit Suisse at the weekend, analysts at JP Morgan said such an outcome was "positive" as it would likely avoid a resolution and that it would likely be accretive to UBS over the long-term.

-- More to follow --