Backed by the Swiss government and the regulators, UBS has agreed to acquire its troubled rival Credit Suisse for almost $3.25bn amid fears that a failure to protect depositors would trigger a new global banking crisis.

The deal was pushed through after the plan to loan $54 billion to Credit Suisse failed to reassure investors and the bank’s customers.

“The takeover of Credit Suisse by UBS is the best solution” in the current situation, said Swiss president Alain Berset.

The takeover was made possible after the Swiss federal government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank agreed to support the deal, he said.

Credit Suisse is among the 30 financial institutions known as globally systemically important banks, and authorities worried about the fallout if it were to fail, news agency AP reported.

After the collapse of Silicon Valley Bank, the crisis engulfing Credit Suisse had fuelled anxiety about contagion in the international banking system.

The Swiss government brokered the UBS-Credit Suisse deal and will change the law to allow it to go ahead without a shareholder vote, the Guardian reported. UBS reportedly bid $1bn at first but this was rejected by the board of Credit Suisse.

“Today is one of the most significant days in European banking since 2008, with far-reaching repercussions for the industry. These events could alter the course of not only European banking but also the wealth management industry more generally,” AP quoted Max Georgiou, an analyst at Third Bridge, as saying.

The deal follows the collapse of two large US banks that spurred a frantic, broad response from the US government to prevent any further panic.

The combination of the two biggest and best-known Swiss banks, each with storied histories dating to the mid-19th century, amounts to a thunderclap for Switzerland’s reputation as a global financial centre — leaving it on the cusp of having a single national champion in banking, AP reported.

Credit Suisse’s 166-year journey thus comes to an end. The financial health of the bank was impacted by scandal and risky bets. 

In 2014, the bank pleaded guilty to allowing US clients to evade their taxes, leading to a $2.6bn fine from the US government and New York financial regulators.

In 2020, Credit Suisse’s then chief executive, Tidjane Thiam, resigned after two corporate espionage scandals involving senior employees, while the bank also lost $5.5bn on the collapse of US hedge fund Archegos Capital a year later.

The storm of negative publicity worsened last year after the Guardian’s revelations, based on a leak, that fraudsters, criminals and corrupt politicians had stored £80bn with the Zürich-based lender.

Credit Suisse’s travails have stoked fears that the international banking system could once again fall prey to the contagion seen in 2008, with ramifications for the wider global economy, the Guardian reported.

UBS plans to sell off parts of Credit Suisse or reduce the bank's size. 

The Swiss government is providing more than 100 billion francs in aid and financial backstops to make the deal go through.

As part of the deal, approximately 16 billion francs ($17.3 billion) in Credit Suisse bonds will be wiped out, AP reported. European bank regulators use a special type of bond designed to provide a capital cushion to banks in times of distress. But these bonds are designed to be wiped out if a bank’s capital falls below a certain level, which was triggered as part of this government-brokered deal.