Credit Suisse, UBS and their key regulators are working out a deal on the merger of Switzerland’s two biggest banks, the Financial Times reported Saturday.
The deal could come together Sunday, the Wall Street Journal reported, also on Saturday.
Regulators have offered to waive a requirement for customary shareholder votes to expedite the sale, one of the people said. The discussions were fast-moving and a remaining sticking point was the status of who will own Credit Suisse’s substantial Swiss retail arm, the reports said.
The Swiss National Bank and regulator Finma have told international counterparts that they regard a deal with UBS as the only option to stop a collapse in confidence in Credit Suisse
CSGN,
CS,
Daily deposit outflows from the bank topped 10 billion Swiss francs, or $10.8 billion, late last week as fears for its health mounted, according to the report.
Boards at the two banks are meeting this weekend. Credit Suisse’s key regulators in the US, the UK and Switzerland are considering the legal structure of a deal and several concessions that UBS
UBSG,
UBS,
has sought.
UBS wants to be allowed to phase in any demands it would face under global rules on capital for the world’s biggest banks. Additionally, UBS has requested some form of indemnity or government agreement to cover future legal costs, one of the people said.
UBS, Credit Suisse, the SNB and the Federal Reserve declined to comment. Finma and the Bank of England did not immediately respond to requests for comment.
The possibility of a deal comes days after the Swiss central bank was forced to provide an emergency credit line of 50 billion Swiss francs, or $54 billion, to Credit Suisse.
See: Credit Suisse shares jump as Swiss banking giant says it will borrow from SNB and buy back debt
This failed to arrest a slide in its share price, which has fallen to record lows after its largest investor ruled out providing any more capital and its chair admitted that an exodus of wealth management clients had continued.
American depositary receipts of Credit Suisse
CS,
jumped more than 7% in the extended session Friday, after ending the regular trading day down 7%. The ADRs are down 24% on the week, contrasting with a weekly gain of 1.4% for the S&P 500 index
SPX,
Shares trading in Zurich had their worst week since the 2008 financial crisis.
The prospective takeover reflects the sharp divergence in the two banks’ fortunes.
Over the past three years, UBS shares have gained about 120 per cent while those of its smaller rival have plunged roughly 70%. UBS has a market capitalization of $56.6 billion, while Credit Suisse closed trading on Friday with a value of $8 billion. In 2022, UBS generated $7.6 billion of profit, whereas Credit Suisse made a $7.9 billion loss, effectively wiping out the entire previous decade’s earnings.
Earlier Bloomberg News reported that Deutsche Bank AG
DBK,
was monitoring the situation at Credit Suisse for a potential opening to acquire certain businesses.
US investment giant BlackRock
BLK,
had drawn up a rival approach, evaluated a number of options and talked to other potential investors, the Financial Times also reported. However, BlackRock denied that it’s working on a possible rival bid for Credit Suisse Group AG, according to Bloomberg News.
A full merger between UBS and Credit Suisse would create one of the biggest global systemically important financial institutions in Europe. UBS has $1.1 trillion total assets on its balance sheet and Credit Suisse has $575 billion.
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UBS, the Swiss banking giant, is reportedly in negotiations to take over its compatriot Credit Suisse, in what could be one of the country’s largest-ever financial mergers.
Reports from MarketWatch and other sources suggest that UBS and the relevant regulators are rushing to have the deal sealed by Sunday. The move comes after Credit Suisse was forced to accept a $10bn bailout from its shareholders amid the global economic downturn.
If the agreement is successful, Credit Suisse will become a subsidiary of UBS and will continue to operate as a separate entity. This would enable the former to build up reserves and take advantage of any extra funding opportunities made available as part of the partnership.
The effects of the situation on Credit Suisse’s current shareholders, as well as its impact on the Swiss economy at large, remain unclear. However, the company has been one of the most badly-hit of all banks by the global coronavirus pandemic, and the proposed takeover would offer some security in uncertain times.
Though details of the agreement have yet to be confirmed, the takeover is a sign of the increasingly fierce competition among banking giants in the European and global markets. As the financial services industry enters a period of even greater anxiety and instability, Credit Suisse will be hoping that its association with a larger partner will give it the edge it needs to survive.
For now, however, all eyes are on UBS and the relevant regulatory bodies, as they seek to seal this potentially ground-breaking and unprecedented agreement.
