Banking giant UBS has reached a deal to acquire its ailing rival Credit Suisse

UBS Group and Credit Suisse Group, two of the biggest names in European banking, are coming together in a government-brokered deal aimed at shoring up public confidence in the Western financial system and averting a global crisis.

UBS agreed on Sunday to pay 3 billion Swiss francs ($3.24 billion) in stock to acquire its embattled rival in a takeover underpinned by government guarantees and 100 billion francs in liquidity assistance from Switzerland's central bank. The agreed price of 1 UBS share for each 22.48 shares of Credit Suisse values the latter bank at less than half its market closing price on Friday. The transaction requires UBS to absorb up to $5.4 billion in losses at Credit Suisse.

"I welcome the swift action and the decisions taken by the Swiss authorities," European Central Bank President Christine Legarde said of the merger. "They are instrumental for restoring orderly market conditions and ensuring financial stability." Although the region's banking sector is "resilient," she added, "our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy."

The merger of Switzerland's two biggest Swiss banks is scheduled to be completed by the end of this year. Western governments and central banks have sought to prevent a cascade of bank failures after the collapses earlier this month of Silicon Valley Bank and Signature Bank in the US.

Credit Suisse last month reported a 2022 net loss of 7.3 billion francs and warned that it would incur another "substantial" loss in 2023 before returning to profitability in 2024. With clients withdrawing their money in droves, Credit Suisse turned to the Swiss central bank for a loan of 50 billion francs last week.

The newly combined bank will boast more than $5 trillion of invested assets. UBS Chairman Colm Kelleher told reporters at a press briefing in Bern, Switzerland, that there are "no options" other than closing the acquisition and making it a success. "This is absolutely essential to the financial structure of Switzerland and... to global finance."