fA critical weekend has dawned for the ailing major bank Credit Suisse. To get the bank struggling with a massive loss of confidence back on track, Swiss regulators are urging the other big Swiss money house UBS to gobble up all or part of its smaller rival, according to a person familiar with the matter.
The merger of the two banks is the “Plan A” of the financial market authority Finma and the Swiss National Bank (SNB), also reported the “Financial Times”. After the trading day, the Credit Suisse share price rose by nine percent. A purchase of Credit Suisse by UBS would be the most important bank merger in Europe since the financial crisis 15 years ago, for which the collapse of the American investment bank Lehman Brothers stands like no other event.
Separate meetings of the boards of directors of the two companies have been scheduled for this weekend to discuss the issue, the Financial Times reported. Other options are also on the table. The aim of the SNB is for the parties to agree on a straightforward solution by the start of trading on Monday. UBS and Credit Suisse declined to comment on the report.
50 billion francs in aid from the SNB
A second report by the British financial newspaper said that the American fund company Blackrock was working on a bid to compete with Credit Suisse. A spokesman for the company said: “Blackrock is not involved in any plans to acquire all or part of Credit Suisse and has no interest in doing so.”
Credit Suisse is the world’s largest financial institution, caught up in the maelstrom of defunct American financial institutions Silicon Valley Bank (SVB) and Signature Bank, although it has little in the way of SVB itself. In the middle of the week, the 167-year-old Swiss bank had to draw on emergency loans from the Swiss National Bank with a volume of up to 50 billion francs. It is the first time since the financial crisis that a central bank has felt compelled to provide support for such a large bank.
This intervention temporarily calmed the situation, but was apparently not enough to break the downward spiral. Not only is the flight of private customers affecting Zürcher Bank, business with other financial institutions is also becoming increasingly difficult. At least four major firms, including Deutsche Bank and Societe Generale, have restricted their dealings with Credit Suisse or its securities, according to five people with direct knowledge of the matter.
Government in Bern is silent
According to insiders, extraordinary meetings have been scheduled for the weekend. This also included teams from CFO Dixit Joshi. Financial data should be processed and scenarios for the future of the institute should be worked out. According to another person familiar with the matter, both banks have reservations about a merger. Nor would regulators have the power to force a merger.
If UBS and Credit Suisse came together, a European financial giant would emerge. UBS currently employs more than 72,000 people, Credit Suisse more than 50,000. Given the overlaps, a merger would probably result in thousands of job cuts. Because of the high market shares in the home market, the question also arises as to whether the competition authorities would wave a merger through. It is conceivable, for example, that the Swiss business of Credit Suisse will be spun off. The institute made the preparations for this a few years ago in connection with stock exchange plans that were later abandoned.
UBS has also repeatedly made it clear publicly that it wants nothing to do with a takeover of Credit Suisse, most recently on Tuesday. In January, Chairman of the Board of Directors Colm Kelleher said: “We also have no desire to buy Credit Suisse.” There is no convincing scenario for such a transaction.
For its part, UBS is doing well: Last year, 2022, the world’s largest wealth manager for the rich and super-rich made a profit of $7.63 billion, the best result in 16 years. Credit Suisse, on the other hand, suffered a loss of CHF 7.3 billion.
The management of UBS wants to grow primarily in the business with wealthy American private clients, while Credit Suisse has largely withdrawn from this business. However, Credit Suisse’s asset management business, particularly in Asia, could be attractive for UBS. In addition, she could probably buy the smaller rival at a bargain price. Credit Suisse is only worth 7.4 billion Swiss francs on the stock exchange, UBS around 60 billion Swiss francs. However, the takeover of a major bank is considered to be highly complex, lengthy and risky.
Warning of new financial crisis
Experts consider the takeover by a major foreign bank to be rather unlikely and there may not be enough time for a split into several parts. Should UBS decline, direct state aid such as buying a stake would be another option. However, Switzerland would have to swallow a fat toad with that. Because after the state rescue of UBS in 2008, the authorities made great efforts to prevent a similar event in the future. For example, the capital regulations were tightened and preparatory measures were taken for the resolution of banks.
So far, the government in Bern has remained silent about the situation at Credit Suisse. But politicians are under enormous international pressure to stabilize Credit Suisse. Because there is a lot at stake. According to experts, if the institute collapses uncontrollably, another financial crisis is imminent.