Federal Reserve Approves UBS's Plan To Acquire Credit Suisse's US Subsidiaries

The US Federal Reserve has approved UBS Group AG's acquisition of Credit Suisse's US subsidiaries. The Swiss authorities mediated the agreement, which will allow UBS to integrate its US operations and activities with Credit Suisse's US companies. UBS requested approval on 22 March and as part of the agreement, it will furnish the Fed with an implementation plan for the merger within three months of the transaction's completion. 

The Fed has ordered UBS to submit a plan that includes liquidity standards as well as compliance with more stringent “enhanced prudential standards.” Because of the increased scale of the institution, the UBS-Credit Suisse investment banking merger has tightened measures.

According to US bank merger legislation, the Federal Reserve must consider bank mergers when a bank with more than USD 250 billion in total assets buys any voting shares in a corporation with USD 10 billion or more in assets. Although Swiss regulators are largely involved in the merging of Europe's banking titans, the US central bank has to weigh in because each company has American operations. The Fed's decision cleared the path for UBS to acquire all of Credit Suisse's US operations.

Last month, the stunning collapse of Silicon Valley Bank in the United States shook investor confidence in Switzerland's largest bank, Credit Suisse. To prevent further banking turmoil, Swiss authorities announced that Credit Suisse would be bought out by UBS, which had also nearly failed.

UBS agreed to buy Credit Suisse for 3 billion Swiss francs (USD 3.3 billion), a considerable discount from its prior market value. According to the takeover deal, shareholders would receive USD 3.23 billion, while holders of Credit Suisse AT1 bonds will receive no compensation despite normally ranking lower in the payment hierarchy than shareholders.

UBS received interim approval from European Union antitrust regulators earlier this month, but the bank still needs to secure clearance under EU merger standards. Meanwhile, the Bank of England has apparently approved the takeover in the United Kingdom, according to Reuters. UBS expects the acquisition to result in a company with more than USD 5 trillion in total invested assets.

The acquisition, according to UBS Chairman Colm Kelleher, is a big milestone for Switzerland and the global financial system, but it entails a “huge amount of risk.” The acquisition will take at least three to four years, excluding Credit Suisse's non-core investment bank portfolio, which will total more than USD 5 trillion in invested assets.