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Troubled bank Credit Suisse has been rescued by its Swiss rival UBS in a government-backed deal.
Sunday evening’s announcement came after a weekend of emergency talks in Switzerland between the two banks and the country’s financial regulators.
The Swiss National Bank said the deal was the best way to restore the confidence of financial markets and to manage risks to the economy.
The central bank has offered liquidity assistance of up to $110bn (£90bn).
Credit Suisse shareholders were deprived of a vote on the deal and will receive one share in UBS for every 22.48 shares they own, valuing the bank at $3.15bn (£2.6bn).
At the close of business on Friday Credit Suisse was valued at around $8bn (£6.5bn).
But the deal has achieved what regulators set out to do – securing a result before the financial markets opened on Monday.
In a statement Switzerland’s central bank said “a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation”.
The federal government said in order to reduce any risks for UBS it would grant a guarantee against potential losses worth $9.6bn (£7.9bn).
The UK Treasury said it welcomed the merger and the British government would continue to engage with the Financial Conduct Authority (FCA) and the Bank of England “as is usual”, a spokesperson said.
“The Bank of England has confirmed the UK banking system remains safe, sound and well capitalised,” they added.
The FCA said on Sunday it was “minded to approve” the takeover to support financial stability as both UBS and Credit Suisse have operations in London.
“The FCA continues to engage closely with UK and international regulatory partners to monitor market developments,” the watchdog said.
Christine Lagarde, President of the European Central Bank, said she welcomed the “swift action” of the Swiss authorities.
“They are instrumental for restoring orderly market conditions and ensuring financial stability.
“The euro area banking sector is resilient, with strong capital and liquidity positions,” Ms Lagarde said.
Speaking in the Swiss capital Berne following Sunday night’s announcement, UBS chairman Colm Kelleher said Credit Suisse was a “very fine asset we are determined to keep”.
Mr Kelleher said UBS would be running down the investment banking part of Credit Suisse.
The UBS chairman said it was “too early” to say what would happen about jobs. “We need to do this in a rational way thoughtfully, when we’ve sat down and analysed what we need to do,” he said.
It comes after Credit Suisse, one of around 30 banks worldwide deemed too big to fail, suffered losses last week following the failure of two smaller US institutions over the past fortnight.
The 167-year-old bank is loss-making and has faced a string of problems in recent years, including money laundering charges.