In an effort to avoid further market-shaking turmoil in the global banking system, UBS is buying troubled rival Credit Suisse for almost $3.25 billion. Here are the key facts about the deal:
- $3.3B all share offer
An all share offer means that the value equivalent of the agreed deal ($3.3B) in UBS shares will be come under ownership of Credit Suisse as payment, rather than using cash or debt to purchase the company.
UBS offered to buy Credit Suisse for about 85% less than it was valued at 2 days ago.
The offer was for $0.27 a share. The price per share marked a 99% decline from Credit Suisse’s peak in 2007.
2. Wipe out of Credit Suisse AT1 bonds
Holders of $17bn of Credit Suisse bonds will have their investment wiped out following the bank’s takeover by UBS.
As part of the historic deal between the banks, Swiss financial regulator FINMA ordered that SFr16bn of Credit Suisse’s additional tier one (AT1) bonds, a relatively risky class of bank debt, will be written down to zero
FINMA decided that Credit Suisse reached the PONV(point of non-viability). This triggers the ability to write them down and offset some of the losses of CS so UBS take on less of a financial hit in the deal.
About AT1 Bonds:
AT1s were introduced as part of the post-global financial crisis regulatory reforms that pushed banks to increase their capital levels. AT1s are a form of contingent convertible security, or coco, which can be converted into equity if the bank runs into trouble.
If a bank’s capital ratio falls below a predefined threshold, AT1 investors can lose their principle or have their investment converted to equity.
They could have been converted into equity and owners of the bonds would have been able to still extract some value from the merger OR they could be written down (reduced in value). In this case they have been written down to ZERO.
If AT1 (spicy bonds) have been written off rather than converted into equities at the expense of investors then this may spark a decline in confidence of investors in these corporate bonds as they may be viewed as more risky
The European AT1 market is worth approx. 17$ billion
3. Swiss govt. will cover $9.7B of potential CS losses imparted on UBS and a further $107.7B liquidity made available from SNB
The Swiss govt. has guaranteed it will absorb some of the losses from assets that may be imparted by CS on UBS to the value of $9.7B and another $107.7B in emergency lending has been made available to UBS should they need it from the SNB
4. CS investment bank to be significantly scaled down
UBS Group AG Chairman Colm Kelleher said he will manage down Credit Suisse Group AG’s investment bank, citing losses in recent years.
5. There will not be a shareholder vote on the deal
Under Swiss law mergers of public companies require a shareholder vote.
A majority need to agree for the deal to go ahead but the Swiss regulator has taken extraordinary measures to ensure the deal goes through, bypassing this stage of the process.
6. Current CS staff to remain employed for now
Conclusion
While the weekend negotiations are seen as a positive step, it remains to be seen if the deal is sufficient to restore trust in lenders around the world. The fallout from the crisis of confidence in Credit Suisse and the failure of the two US banks could ripple through the financial system this week, according to two senior executives with knowledge of the discussions.
International Tax Panorama 
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