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Swiss authorities are considering unprecedented moves to force a takeover of Credit Suisse Group AG by UBS Group AG, with the risk of some form of nationalization increasing by the minute before markets open on Monday.
UBS is offering to buy Credit Suisse for about 1 billion francs ($1.1 billion), a deal that pushes back the troubled Swiss company with backing from its largest shareholder, Saudi National Bank, people in the know said. But his bargaining power is limited, as other options may be even more painful for his stock and bond investors.
Swiss officials are considering legislative changes to prevent shareholders from having to vote on the deal, some people said. They are considering full or partial nationalization of Credit Suisse as a fallback option if a UBS deal falls in the foreseeable future, some people said, asking for anonymity when discussing private deliberations.
As regulators and bankers scramble for a deal to calm markets, officials grapple with brutal choices between violating shareholder rights or risking an escalation of the crisis. A low-cost, no-owner-control deal risks litigation and hurdles for would-be international investors pouring money into Switzerland. No solution in the next 12 hours risks something even worse.
Credit Suisse, which ended Friday with a market value of about 7.4 billion francs ($8 billion), believes UBS’s offer is too low and would hurt shareholders and employees who have deferred stock, the people said. The book value of Credit Suisse’s equity ended last year at 45 billion francs.
A big question is whether Credit Suisse should still be viewed as the bank that regulators declared on Wednesday evening had sufficient capital and liquidity and faced market panic. But Swiss regulators are concerned about customers and counterparties pulling out of the bank over the past week, and officials from the US and elsewhere are pushing for a final solution by the time markets open Monday to prevent markets or other financial companies become infected.
UBS’s offer was announced on Sunday at a price of 0.25 francs per share payable in stock. Credit Suisse closed 8% lower on Friday to 1.86 francs.
Swiss authorities are trying to broker a deal that would resolve a defeat in Credit Suisse that sent shockwaves across the global financial system last week as panicked investors dumped its stocks and bonds following the collapse of several smaller US lenders. Years of battle came to a head after the company said its efforts to win back customers this year had not stopped outflows and the Saudi National Bank ruled out a larger stake.
A liquidity boost from the Swiss central bank halted the declines for a while, but the market drama carries the risk that customers or counterparties will continue to flee, with potential implications for the wider industry.
UBS tries to protect itself as it goes up against a big, complex rival with little time to fully vet its books. It is seeking a government backstop for certain legal and other costs that may arise in the future, Bloomberg reported Saturday. UBS also pushed for a material adverse change that would void the deal if credit default spreads widen by 100 basis points or more, the Financial Times reported.
“It’s clear that UBS isn’t under pressure to buy a bunch of mismanaged risks at the market level,” said Frederik Hildner, managing director at Confluente Capital. “Their offer of CHF 0.25 per share indicates that CS is in deep trouble and may be worthless. Stocks are poised for a hard slump on Monday unless other solutions come to the rescue tonight.”
If government money were put directly into Credit Suisse, Swiss officials would likely demand the bail-in of debt and holders of additional tier 1 notes to potentially bear losses, said one of the people involved in the discussions. Credit Suisse had about 15 billion francs in AT1 securities and 49 billion francs in bail-in debt instruments at the end of 2022.
The complex discussions about what would be the first combination of two globally systemically important banks since the financial crisis have weighed in on the Swiss and US authorities, according to those in the know. Talks gained momentum on Saturday, with all parties pushing for a solution that can be implemented quickly.
Credit Suisse’s process of cutting 9,000 jobs in an attempt to save itself would be escalated if the company were acquired by UBS, according to people familiar with the discussions, with one person estimating the eventual toll to be a multiple of that number could be. The two lenders together employed nearly 125,000 people at the end of last year, about 30% of them in Switzerland.
–With help from Jan-Patrick Barnert and Blaise Robinson.
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