The UBS‐Credit Suisse Merger: Helvetia's Gift

Abstract

The UBS-Credit Suisse (CS) merger in March 2023, one of the biggest banking unions in history, was an emergency rescue deal engineered by Swiss authorities to avoid more market-shaking turmoil in global banking. The merger resulted in a significant increase in the combined stakeholder net wealth, totaling 19.5 bn US dollars. This increase was distributed around the merger announcement through abnormal returns to UBS stockholders (7.95%) and CS bondholders (34.74%), equivalent to approximately 5.1 bn and 18.8 bn US dollars, respectively. In contrast, CS stockholders experienced negative abnormal stockholder returns of-55% (-4.4 bn USD) while the UBS bonds' value was not impacted by the merger. We infer that UBS stockholders received a wealth transfer from CS stockholders and that this transfer is likely explained by unusual restrictions on the number of bidders for CS. The observed effects on bondholders' wealth align with previous research on coinsurance and the implications of "too-big-to-fail" research findings. We conclude that the combined wealth effect, which cannot be attributed to the short-term abnormal returns on securities of the two banks, is externally driven. It appears to come at the expense of taxpayers: the merger-bailout has increased Switzerland's sovereign credit risk, resulting in an expected 6 to 7 bn US dollars in additional debt costs for the country.