Banking crisis: frantic negotiations to avoid the collapse of Credit Suisse by merging it with UBS

On a hectic Saturday, members of the boards of UBS and Credit Suisse, the two largest Swiss banks, hold meetings with each other and with authorities from the Swiss National Bank (BNS, the Swiss Central Bank) and Finma, the system regulator. bank, to achieve a merger that prevents the collapse of Credit Suisse.

It would be the merger of the two largest Swiss banks, which are in very different situations and could come to fruition this same Saturday night, the Financial Times reported in recent hours.

According to the British newspaper, Finma, the Swiss banking regulator, told its international counterparts that an agreement with UBS would be the only way to counteract and overcome the collapse of confidence at Credit Suisse, which in a single day last week suffered a drain on funds of more than 10 billion Swiss francs, just under USD 11 billion, despite the provision by the SNB of an emergency credit line of USD 54 billion.

In addition to the meeting of the boards of both banks, the banking regulators of Switzerland, the US and the UK are studying the legal structure of the possible agreement, taking into account several concessions requested by UBS, which in case it is allowed to defer any future lawsuits. under the global capital rules for the largest banks. In addition, some sources in the negotiations told the FT that UBS has sought some form of indemnity to cover future legal costs.

Indeed, Credit Suisse has already set aside 1.2 billion Swiss francs in legal provisions and warned that pending lawsuits and regulatory challenges could add another 1.2 billion of the same currency.

For the week, the Swiss National Bank’s $54 billion emergency line provided initial relief but failed to offset Credit Suisse’s shares plunging to a record low after its largest investor and shareholder ruled out providing new capital and that the bank admitted an exodus of clients from its “wealth management” portfolio. Other European banks also suffered from the crisis of confidence triggered by the collapse of the US Silicon Valley Bank.

According to the FT, the possible takeover of Credit Suisse by UBS reflects the sharp difference in fortunes between the two: in the last 3 years, the value of UBS shares has risen 120%, while that of Credit Suisse has fallen 70%. .

Other figures confirm the strong divergence of dynamics and size. UBS has a market capitalization of $56.6 billion, while last Friday Credit Suisse’s had fallen to $8 billion, less than a seventh. In addition, in 2022 UBS recorded profits of USD 7.6 billion, and Credit Suisse losses of USD 7.9 billion, a figure higher than the profits it had registered in the previous ten years.

Swiss regulators, always according to the Financial Times, informed those of the US and the United Kingdom that the merger of both banks was “Plan A” to restore confidence in Credit Suise. But there are no guarantees that the deal will go through, as it would have to be approved by UBS shareholders in any case.

The Swiss National Bank’s favor of a “Swiss solution” has scared off other potential bidders, such as the BlackRock investment fund, the world’s largest fund manager. In turn, the merger between UBS and Credit Suisse would create one of the largest global banks, systemically important for Europe: UBS’s total assets are USD 1.1 trillion (that is, 1.1 trillion dollars). and those of Credit Suisse total USD 575,000 million.

Precisely, notes the British media, the size of the potential merger is one of the issues that complicates carrying it out. Other options had previously been considered, including breaking up Credit Suisse, raising funds through its Swiss arm and selling the wealth management and asset management divisions to UBS and other bidders.

The saga accelerated with the bankruptcy of the US Silicon Valley Bank, but it is not new. UBS has been awaiting an emergency bailout order for Credit Suisse from the Swiss government after the latest restructuring failed to resolve a series of problems at the bank. In 2022, CEO Ulrich Korner had announced a plan to cut 9,000 employees and spin off a good chunk of its investment banking division into a new entity.

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