UBS will take over Credit Suisse in a deal aimed at stemming what was fast becoming a global crisis of confidence.
Credit Suisse, the 167-year-old embattled lender had been brought to the brink of financial calamity last week, despite securing a $54bn (£44bn) credit line from Switzerland’s central bank.
The credit line was agreed in a move aimed at reassuring markets and depositors, but it failed to stem a rush of customer withdrawal, prompting a request from the Swiss government for the rival UBS to consider a takeover.
That takeover was announced on Sunday evening – UBS will pay 3bn Swiss francs (£2.6bn) to acquire Credit Suisse, it has agreed to assume up to 5bn francs (£4.4bn) in losses, and 100bn Swiss francs (£88.5bn) in liquidity assistance will be available to both banks.
The deal is expected to be closed by the end of this year.
Colm Kelleher, chairman of UBS Group, said the agreement “represents enormous opportunities”.
He also said that his bank’s long-term aim would be to downsize Credit Suisse’s investment banking business and align it with the “conservative risk culture” of UBS.
Axel Lehmann, chairman of Credit Suisse, described the day as “historic, sad and very challenging” for his bank and the global market.
‘The best available outcome’
Mr Lehmann said: “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome.
“This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome.”
In a statement, the Swiss central bank and other officials said that the agreement represented “a solution…to secure financial stability and protect the Swiss economy in this exceptional situation”.
It is also hoped that UBS’s takeover of its old rival will avoid the contagion of the kind seen in the financial crisis of 2008.
This is a significant deal but huge risks continue to lurk in the global financial system
This combination brings together not only Switzerland’s two biggest banks but two of the most significant financial institutions in the world.
There was reference during the press conference to discussions with Jeremy Hunt, the British chancellor.
That underlines the crucial nature of this deal as governments and financial regulators around the world race to contain the banking sector’s biggest crisis of the last 15 years.
This was always a deal that the Swiss government had resisted. It had been speculated so many times over the last decade, but the Swiss government had always wanted to maintain two national banking champions.
But let’s be clear – all the parties involved in this deal have effectively been strong-armed into it by the crisis of confidence which has erupted at Credit Suisse, and which has been fomenting for some time.
UBS has been effectively strong-armed into doing this deal by the Swiss government, and Credit Suisse has been forced to accept it – there won’t be a shareholder vote on the transaction.
The only alternative to this deal happening was going to be when financial markets opened on Monday in Asia and then in Europe, some form of nationalisation or resolution of Credit Suisse which would have deepened the sense of crisis in the industry.
This government-orchestrated rescue does avert the collapse of a major global bank but while it might be tempting to believe this draws a line under this banking crisis, remember that a week ago HSBC stepped in to buy the British arm of Silicon Valley Bank for £1 after its American parent collapsed, and a number of other mid-sized US banks have been forced to seek emergency support in the last 10 days.
All of this is a sobering reminder that as interest rates risk sharply to combat global inflationary pressures, huge risks continue to lurk in the global financial system.
Central banks insist systems are resilient
The news was welcomed by central banks in the US, Europe and in the UK.
All three insisted that banking systems within their jurisdiction are strong and resilient.
The Bank of England said: “We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation.
“The UK banking system is well capitalised and funded, and remains safe and sound.”
A deal likely to ripple through global markets
Credit Suisse is one of the world’s largest wealth managers and is also one of 30 banks ranked as systemically important, meaning the deal is likely to ripple through global markets on Monday.
It is also one of the largest investment banking employers in the City of London, employing around 5,000 people.
In a memo to employees on Sunday, Credit Suisse said there would be no immediate impact on clients or day-to-day working operations, adding that branches and global offices would remain open.
It comes after a difficult few weeks for the banking sector, with the collapse of US lenders Silicon Valley Bank and Signature Bank.
The UK branch of SVB was rescued by HSBC for £1, but a number of other mid-sized American lenders have also been forced to seek emergency funding.
Food and fashion push retail inflation towards ‘two-year low’
The annual rate of shop price inflation has eased to its lowest level for almost two years, according to an industry reading that credits food and fashion prices.
The British Retail Consortium (BRC)-Nielsen Shop Price Index showed the pace of price increases slowed to 2.5% over the 12 months to February from 2.9% the previous month.
It was the lowest reading since March 2022, the BRC said.
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It was driven by a significant contribution from food, with prices 5% up on a year ago compared with the 6.1% figure registered at the end of January.
The report pointed to price drops for meat, fish and fruit helping fresh food inflation down to 3.4% from an annual rate of 4.9% just four weeks ago.
The BRC credited easing input costs for energy and fertiliser and “fierce” competition for cash-strapped shoppers among retailers.
A separate report by Kantar Worldpanel, which logs supermarket price and sales data, also pointed to an easing in grocery price inflation but it believed food shoppers would be spared a big acceleration in prices ahead.
Its strategic insight director, Tom Steel, said: “Though there’s been lots of discussion about the impact the Red Sea shipping crisis might have on the cost of goods, supermarkets have been pulling out all the stops to keep prices down and help people manage their budgets.
“This month, Morrison’s became the latest retailer to launch a price match scheme with Aldi and Lidl, after Asda made the move in January.
“More generally, we saw promotions accelerate this month after a post-Christmas slowdown. Consumers’ spending on offers increased by 4% in February, worth £586m more than the same month in 2023.”
The BRC pointed out rising costs for things like furniture and electrical goods but extended offers on fashion, to entice spending by customers, during February.
It saw risks ahead to slowing price growth from a series of issues including disruption to shipping in the Red Sea to minimum wage and business rates hikes planned for April.
Helen Dickinson, the BRC’s chief executive, said: “Easing supply chain pressures have begun to feed through to food prices, but significant uncertainties remain as geopolitical tensions rise.
“Prices of non-food goods will be more susceptible to shipping costs, which have risen due to the re-routing of imports around the Cape of Good Hope.
“Domestically, retailers face a major rise to their business rates bills in April, determined by last September’s sky-high inflation rate.
“April’s rates rise should be based on April’s inflation, and the chancellor should use the… budget to make this correction, supporting business investment and helping to drive down prices for consumers.”
‘Real danger’ UK will miss out on economic growth without green plan – CBI economists warn
The UK will “miss out” on economic growth unless it finally comes up with an industrial strategy to green the economy, the leading business group has warned.
As the UK economy has stagnated in recent years, the value of green industries like renewables, eco-friendly heating and energy storage is growing and will help unlock further cash for the UK, according to economists at the Confederation of British Industry (CBI).
They found that while Britain’s GDP growth was stuck at around 0.1% last year, its net zero economy grew by 9%, and attracted billions of pounds in private investment.
It argues private investment is key to unlocking growth.
The UK has committed to reaching net zero by 2050, but the report comes after Labour rowed back on its £28bn green investment pledge, and the Conservatives waged a rhetorical attack on climate policies.
Net zero means almost eliminating greenhouse gas emissions and requires changes to almost every sector, from food to housing, transport to construction.
The businesses implementing these changes – including solar panel installers and green finance advisers – added £74bn in Gross Value Added (GVA) in 2022-23, which is larger than the economy of Wales (£66 billion), according to the CBI Economics report.
But analysts at CBI Economics and thinktank ECIU, which commissioned the report, warned “the strength of future growth is in jeopardy”.
Unless the UK draws up a “Net Zero Investment Plan”, it will lose out to places with larger economies with clear plans, like the US And EU, it said.
Louise Hellem, CBI chief economist, said: “Green growth prizes could deliver a boost of up to £57bn to GDP by 2030, but global competition is heating up.
She added: “If we can’t outspend our international competitors, we need to outsmart them. And the way to do that is really through ambitious policy frameworks that can direct capital into the UK’s green industries.”
Ms Hellem said the UK economy is “well-placed to be a world leader in this space”, given its “unique blend of advanced manufacturing capacity, world leading services industry and energy technical skills”.
“That means that investors do really see opportunities in the UK market.”
‘Real danger’ UK will miss out
Getting to net zero is likely to cost about £10bn a year until 2050, according to the Office for Budget Responsibility, which is roughly equivalent to the annual defence budget, though the majority of the cost is likely to be recouped in savings.
Many technologies that scientists believe are essential to the net zero transition remain extremely expensive, such as hydrogen and carbon capture and storage.
Adam Berman, deputy director of advocacy at industry group Energy UK, said public investment can “de-risk” these technologies and “crowd in” private sector cash, that can then bring down the price.
Jess Ralston from energy thinktank ECIU, said: “The UK is in real danger of missing out on more investment from negative rhetoric and U-turns around net zero, when the EU and US are offering clear plans and are willing to invest themselves.
“Investors want certainty and that comes from long term stable policy – whoever forms the next government will have to remember that, if it wants to see the net zero economy continue to grow.”
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Record number of in-store transactions made using contactless
A record 93.4% of in-store card transactions up to £100 were made using contactless in 2023, according to data from Barclays.
The figures are based on Barclays debit card and Barclaycard credit card transactions.
Shoppers made 231 transactions on average, spending an average of £15.69 each time.
This added up to the typical shopper making £3,620 worth of contactless payments over the year.
While contactless is still more popular among younger age groups, the gap between older and younger people using the tech is narrowing, Barclays said.
Last year, the proportion of active users among 85 to 95-year-olds passed 80% for the first time.
And for the third year in a row, the over-65s were the fastest-growing group for contactless usage, Barclays said.
A survey of 2,000 people by Opinium Research for Barclays indicated just 3% of over-75s prefer using mobile payments to physical cards – compared with a quarter (25%) of 18 to 34-year-olds who said they prefer to use their phone.
More than a fifth (22%) of people aged 18 to 34 regularly leave their wallet behind when out shopping in favour of paying with their smartphone, compared with just 1% of over-75s.
Just under a fifth (18%) of people said they struggled to remember their PIN.
For the second year running, the Friday just before Christmas (22 December 2023) was the biggest day for contactless payments, as shoppers picked up last-minute gifts and enjoyed drinks as they clocked off for the holiday.
Karen Johnson, head of retail at Barclays, said: “In 2024, we expect to see a greater shift to payments using mobile wallets, as more bricks-and-mortar businesses integrate the technology into their customer experience.
“Many of our hospitality and leisure clients are finding success by giving customers the ability to order and pay from their table by scanning a QR code.”
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