UBS is very close to acquiring Credit Suisse

UBS Group AG is close to a deal to acquire Credit Suisse Group AG as part of an urgent effort by Swiss and global authorities to restore confidence in the banking system, The Wall Street Journal reported, citing sources familiar with the situation.

The deal could be done on Sunday, if not sooner. Regulators have offered to waive the requirement for the usual shareholder votes to speed up the sale. Discussions are moving quickly and the remaining point of contention is who will own Credit Suisse’s substantial Swiss retail arm.

UBS is pushing for about $6 billion in government guarantees for a potential takeover of Credit Suisse, Reuters reported, citing a person familiar with the discussions. Talks are still ongoing and the amount may change as several scenarios are still under consideration. The guarantees will cover the costs of liquidating parts of Credit Suisse and potential legal fees, the source said. A second insider confirmed the information without specifying the amount of $6 billion.

The 167-year-old Credit Suisse is the biggest company to be caught up in the turmoil caused by the bankruptcy of US lenders Silicon Valley Bank and Signature Bank last week, which triggered a widespread loss of investor confidence worldwide. There have been numerous reports of interest in Credit Suisse from other competitors. Bloomberg reported that Deutsche Bank was exploring the possibility of buying some of X’s assets, and US financial giant BlackRock denied material that it was involved in a rival bid for the bank.

This week, Credit Suisse received a bailout of more than 50 billion Swiss dollars from the Swiss National Bank (the country’s central bank) as concerns about its outlook intensified. That action was not enough to stop Credit Suisse’s share price from collapsing or stem the outflow of bank deposits, forcing the central bank and Switzerland’s top financial regulator to hold talks with Credit Suisse’s larger rival, UBS.

The banks have discussed a number of scenarios, including one that ends with UBS acquiring all or part of Credit Suisse, according to people familiar with the matter. UBS is likely to shrink Credit Suisse’s investment banking unit, which is in the process of being spun off.

Ending the nearly 167-year-old Credit Suisse business would be one of the most significant moments in the banking world since the 2008 financial crisis. It would also represent a new global dimension to the damage from the banking storm that began with the sudden collapse of Silicon Valley Bank earlier this month.

The bankruptcy of California-based Silicon Valley Bank has drawn attention to how the relentless campaign by the US Federal Reserve and other central banks – including the European Central Bank this week – to raise interest rates is putting pressure on the banking sector. The failures of SVB and Signature are the second and third largest bank failures in US history, after the collapse of Washington Mutual during the 2008 global financial crisis.

After SVB’s collapse, banking stocks globally were hit, with the S&P Banks index falling 22%, its biggest two-week loss since the pandemic rocked markets in March 2020.

Major U.S. banks provided $30 billion in aid to smaller lender First Republic, and U.S. banks as a whole requested a record $153 billion in emergency liquidity from the Federal Reserve in recent days.

This reflects “strains in bank funding and liquidity caused by weakening investor confidence,” said Moody’s, which this week cut its outlook for the US banking system to negative.

While the support of some of the titans of American banking prevented First Republic from going bankrupt, investors were surprised by the revelations about its cash position and how urgently it needed liquidity.

In Washington, attention has turned to the possibility of imposing stricter oversight to ensure that banks and their executives are held accountable.

US President Joe Biden has called on Congress to give regulators greater powers in the sector, including imposing higher fines, recovering funds and barring managers of failed banks from taking similar positions afterwards.