UBS (UBSG.S) will buy rival Swiss bank Credit Suisse (CSGN.S) for 3 billion Swiss francs ($3.23 billion) and agreed to assume up to $5.4 billion in losses, in a shotgun merger engineered by Swiss authorities to avoid further market-shaking turmoil in global banking.

U.S. Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen said they welcomed the announcement by the Swiss authorities to support financial stability.

“The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient,” they said in a statement, adding they have been in close contact with international counterparts.

Swiss regulators were forced to step in and orchestrate a deal to prevent a crisis of confidence in Credit Suisse spilling over into the broader financial system. The deal is expected to close by the end of 2023.

The Swiss banking marriage follows efforts in Europe and the United States to support the sector since the collapse of U.S. lenders Silicon Valley Bank and Signature Bank.

The European Central Bank said the Swiss rescue of Credit Suisse was “instrumental” for restoring calm, but it remained ready to support euro zone banks with loans if needed.

The U.S. Federal Deposit Insurance Corp (FDIC) is planning to relaunch the sale process for Silicon Valley Bank (SIVB.O), with the regulator seeking a potential breakup of the lender, according to people familiar with the matter.

The Swiss finance minister said the bankruptcy of a globally important bank would have created irreparable consequences for financial markets.

It was not yet clear if the deal is enough to restore trust in lenders around the world. The first indication could come when stock markets open in a few hours in Asia, Australia and New Zealand.

The Swiss central bank said the deal includes 100 billion Swiss francs ($108 billion) in liquidity assistance for UBS and Credit Suisse.

The effect on jobs was not immediately clear.

UBS Chair Colm Kelleher said during a press conference that it will wind down Credit Suisse’s investment bank, which has thousands of employees worldwide. UBS said it expected annual cost savings of some $7 billion by 2027.

Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to 0.76 Swiss francs per share for a total consideration of 3 billion francs, UBS said.

Officials have been racing to rescue the 167-year-old bank, among the world’s largest wealth managers, after a brutal week saw the second- and third-largest U.S. bank failures in history. As one of 30 global banks seen as systemically important, a deal for Credit Suisse could ripple through global financial markets.

At least two major banks in Europe are examining scenarios of contagion possibly spreading in the region’s banking sector and looking to the Federal Reserve and the European Central Bank to step in with stronger signals of support, two senior executives with knowledge of the discussions said.

The fallout from the crisis of confidence in Credit Suisse and the failure of the two U.S. banks could ripple through the financial system this week, the two executives separately told Reuters on Sunday.

Credit Suisse shares lost a quarter of their value last week. The bank was forced to tap $54 billion in central bank funding as it tries to recover from scandals that have undermined the confidence of investors and clients.

Swiss authorities are examining imposing losses on Credit Suisse bondholders as part of a rescue of the bank, two sources with knowledge of the matter said on Sunday.

However, European regulators are apprehensive about such a move for fear that it could hit investor confidence elsewhere in Europe’s financial sector, the sources said, speaking on the condition of anonymity.

($1 = 0.9280 Swiss francs)

Related Galleries:

---