The Swiss National Bank said at a press conference in Bern on Sunday evening that UBS would be taking over embattled lender Credit Suisse.
The deal will see UBS acquire Credit Suisse for 3 billion Swiss francs ($3.23 billion).
Swiss President Alain Berset said that the Swiss Federal Council welcomed the takeover as it was the "best solution" to restore and strengthen market confidence in Credit Suisse and the Swiss financial center.
It was not immediately clear whether the rescue would calm investor concerns about the banking sector more generally.
How are markets reacting?
As they had hoped, Swiss authorities reached an accord just in time for the first stock markets in Australia, New Zealand and Asia to open for Monday trading in the coming hours, when the first indications might appear.
The US Federal Reserve and other central banks also sought Sunday to ease fears through a coordinated effort to inicrease liquidity in the banking sector. The British, Canadian, Swiss and EU central banks are reportedly involved iin the effort to step up access to dollars in so-called swap line operations.
Early Monday, Hong Kong's monetary authorities said Credit Suisse opened as usual and the local banking sector's exposure is "insignificant." Shares however did drop across Asia on opening as markets retreated slightly.
What more do we know?
Government and banking officials had been locked in urgent talks to rescue the embattled lender, which was given a $54 billion (€50 billion) lifeline by the country's central bank this week.
Swiss Finance Minister Karin Keller-Sutter said at the press conference that the government in Bern had agreed to provide guarantees of up to 9 billion Swiss francs to underwrite the takeover. But Keller-Sutter said these guarantees would apply only to a "very specific portfolio, which UBS is now taking over."
She also said that the guarantees would only start to apply if UBS's losses connected to the takeover exceeded 5 billion francs.
Merger builds on 'best skills available' — UBS chair
Chair of UBS Colm Kelleher repeatedly referred to the deal as either an "integration" or "transaction."
Kelleher said the merger would "enhance the combined organization's ability to serve our clients and deepen our best-in-class capabilities."
However, he also sought to reassure those outside the banking sector that UBS would reduce the amount of risk Credit Suisse is exposed to, and that it recognized the need to keep capital available amid the war in Ukraine and unusually high inflation.
"We are also aware of the need to support the broader Swiss economy and our clients at a time when macroeconomic uncertainty makes business conditions challenging and unpredictable," Kelleher said, before moving on to his goal of downsizing Credit Suisse's investment banking activities.
"Let me be very specific on this: UBS intends to downsize Credit Suisse’s investment banking businesses and align it with our conservative risk culture. It is intended that the combined investment banking businesses will over time account for no more than 20% of the group’s risk-weighted assets."
Deal worth less than half of shares' face value
Earlier there were reports, including from The Financial Times, that UBS had offered to buy the bank for up to 1 billion Swiss francs, and then later 2 billion Swiss francs, but Credit Suisse had reportedly pushed back against these offers,
In the 3 billion franc deal, UBS will pay 0.76 Swiss francs (around $0.82 or €0.77) per Credit Suisse share, well below the closing price of 1.86 francs on Friday. That would make the bank's value by market capitalization around $7 billion, while as recently as a year ago Credit Suisse was valued at roughly $25 billion by shareholders.
But UBS is also assuming liability for 5 billion francs in losses before government support would kick in, according to the Swiss finance minister.
UBS and Credit Suisse said the deal was not subject to shareholder approval, suggesting the Swiss government waived this requirement in this case.
