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Hello and welcome to today's podcast. In this episode, we will be discussing the recent deal finalized between UBS Group AG and Credit Suisse Group AG, which has made headlines across the global banking industry. Let us take a deep dive into the series of events that unfolded resulting in a historic deal being brokered by the Swiss government late on Sunday to arrest the ongoing crisis at Credit Suisse into a full-blown international banking crisis.Credit Suisse, with a rich history of over 160 years, has helped put Switzerland in a strong position in the field of international finance. However, the bank has been embroiled in multiple scandals, legal issues, and changes in management, leading to a crisis of confidence among its investors. The bank has struggled to reach its peak of 2007, as its assets have declined to around $580 Bn, which is approximately 50% of UBS assets.In 2021, the collapse of investment fund Archegos and Greensill Capital triggered sharp selloff in Credit Suisse shares. The multiple changes in top managements since 2021, failed to generate investor confidence in the restructuring plans aimed at aiding the ailing bank.The bank further confirmed in February that it faced redemptions amounting to 110 Bn CHF in the fourth quarter, while they also declared their largest annual loss since the Financial Crisis amounting to 7.2 Bn CHF. The ongoing international banking crisis, post the collapse of Silicon Valley Bank, accelerated issues for Credit Suisse group after its top shareholder, Saudi National Bank, decided last Wednesday that they would not invest more in the Swiss lender. Credit Suisse Group AG is on the list of top 30 systemically important banks, and the authorities were worried about the ramifications if it were to fail. UBS Group AG has agreed to rescue Credit Suisse Group AG for about 3 Bn CHF ($3.3 Bn) in an all-share deal, further backed by extensive guarantees and liquidity provisions. The deal is deemed to be historic, complex and unique and is expected to be complete by end of 2023The deal is at a hefty discount from the bank’s valuation of 100 Bn CHF at its 2007 peak. As a component of the agreement, Credit Suisse will have around 16 Bn CHF ($17.3 Bn) in AT1 bonds written down. According to UBS Chairman Colm Kelleher, the bank is enthusiastic about Credit Suisse's wealth management and Swiss business but not so much about its investment bank. The combined company is set to manage $5 trillion of client assets, and UBS aims to retain Credit Suisse's profitable Swiss unit, despite concerns about domestic market concentration arising out of the deal. However, the investment bank is expected to shrink, putting an end to any hopes of a CS First Boston spinoff.Although clarity is yet to emerge on how many jobs will be affected by the merger, UBS has indicated that it will be significant. The bank plans to cut the combined company's annual cost base by over $8 Bn by 2027, which is almost half of Credit Suisse's expenses from the previous year.Both banks have unrestricted access to the Swiss National Bank's liquidity facilities, and the Swiss government has pledged to cover up to 9 Bn CHF in losses from specific assets that UBS assumes as part of the transaction. In the event of losses UBS will assume the initial 5 Bn CHF of losses and the federal government will absorb the next 9 Bn CHF. If losses extend further, UBS will absorb the rest. The government guarantee was essential to get the deal over the line as UBS had very little time to conduct a thorough due-diligence, especially due to the “hard-to-value” nature of some of the assets that UBS plans to wind down. The merger of Switzerland's two largest and most renowned banks, both with rich histories that go back to the mid-1800s, represents a significant blow to Switzerland's image as a prominent financial hub. This move puts the country on the verge of having only one leading national bank, thereby likely diminishing its status as a financial centre on the world stage.In an Indian context, one must note that even though Credit Suisse has more relevance than Silicon Valley bank, the bank has limited operations in the country and represents 0.1% share in assets. Indian banking space is safeguarded by strong banking regulation put in place. As per RBI rules, banks must mandatorily park 18% of their deposits in the statutory liquidity ratio (SLR) and another 4.5% in the cash reserve ratio (CRR). Also, the asset quality of Indian banks is strong and improving.