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UBS Group AG and Swiss officials race to strike a deal for the company to take over battered rival Credit Suisse Group AG this weekend as they try to navigate thorny issues such as a government backstop and the fate of the investment bank of the smaller company.
At the urging of regulators, UBS has brushed aside its initial opposition to a deal and is exploring possible structures that could be put in place quickly to stop a deep crisis of confidence, people aware of the talks said. UBS is asking the Swiss government to assume certain legal costs and possible future losses in any deal, the people said, asking not to be identified when describing private discussions.
The complex discussions over what would be the first combination of two globally systemically important banks since the financial crisis have led Swiss and US authorities to come into play, some people said. Still, talks are speeding up and all parties are pushing for a quick resolution after a week in which customers withdrew and counterparties withdrew from some transactions with Credit Suisse. The goal is to announce a deal between the two banks by Sunday evening, with Saturday still possible, the people said.
Under a likely scenario, the deal would see UBS acquiring Credit Suisse to take over its wealth and asset management units, while potentially divesting its investment banking division, the people said. Talks are still ongoing over the fate of Credit Suisse’s profitable Swiss universal bank, which is likely to be attractive to UBS but may make the country’s domestic banking sector too concentrated, the people said.
Representatives from UBS, Credit Suisse and the Swiss Ministry of Finance declined to comment.
A government-brokered deal would resolve a defeat in Credit Suisse that sent shockwaves across the global financial system this week as panicked investors dumped its stocks and bonds following the collapse of several smaller US lenders. A liquidity boost from the Swiss central bank this week halted the declines briefly, but the market drama carries the risk that customers or counterparties will continue to flee, with potential implications for the wider industry.
Other financial firms, including Deutsche Bank AG, are monitoring the situation in case attractive Credit Suisse assets are compromised, either in a UBS takeover or some other form of breakup, according to people briefed on those discussions.
The discussions raise questions about the future of Credit Suisse’s bold plan to carve out its investment banking division under the legendary First Boston brand. The company had been working towards the legal and operational separation of what would become CS First Boston, but those efforts are still in their infancy. Chief Executive Officer Ulrich Koerner said this week that the company was looking at a possible IPO for the company in 2025.
Credit Suisse has also downsized its trading business, but that still bears much of the bank’s capital requirements.
“The investment bank is the part that most people want to cash in on,” said James Athey, investment director at Abrdn. “That’s probably where a lot of these exposures are. So that’s the challenge that needs to be addressed.”
UBS executives opposed an arranged combination with its rival because they wanted to focus on their own asset management-focused strategy and were reluctant to take risks associated with Credit Suisse, Bloomberg reported earlier this week. Credit Suisse has been unprofitable for the past decade and incurred billions in legal losses.
Credit Suisse had 1.2 billion Swiss francs ($1.3 billion) in regulatory provisions at the end of 2022 and disclosed that it was seeing reasonably possible losses adding another 1.2 billion francs to that total, with several pending lawsuits and regulatory investigations , according to Bloomberg Intelligence.
Credit Suisse’s market value has fallen to about CHF 7.4 billion after peaking in 2007 at more than CHF 100 billion. The market value of UBS is 60 billion francs. Clients raised more than $100 billion in assets in the last three months of last year as concerns about financial health mounted, and outflows continued even after it tapped shareholders for a 4 billion francs capital raise.
Read more: Credit Suisse Weak disclosure increases risk: legal outlook
A merger between the two Swiss banking giants, whose headquarters face each other at Zurich’s central Paradeplatz, would be a historic event for the nation and global finance.
The two banks, both considered globally systemically important by the Financial Stability Board, are linked by frequent exchanges of executives from one side of Paradeplatz to the other. Both Chairman Axel Lehmann and CEO Ulrich Koerner are former decision makers at UBS.
–With assistance from Bastian Benrath.
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