CNA – UBS AG is asking the Swiss government to cover about USD6 billion in costs if it were to buy Credit Suisse, a person with knowledge of the talks said, as the two sides raced to hammer together a deal to restore confidence in the ailing Swiss bank.
The 167-year-old Credit Suisse is the biggest name ensnared in the turmoil unleashed by the collapse of US lenders Silicon Valley Bank and Signature Bank over the past week, spurring a rout in banking stocks and prompting authorities to rush out extraordinary measures to keep banks afloat.
The USD6 billion in government guarantees UBS is seeking would cover the cost of winding down parts of Credit Suisse and potential litigation charges, two people told Reuters.
One of the sources cautioned that the talks to resolve the crisis of confidence in Credit Suisse are encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combine.
Swiss regulators are racing to present a solution for Credit Suisse before markets re-open today, but the complexities of combining two behemoths raises the prospect that talks lasted up till yesterday, said the person, who asked to remain anonymous because of the sensitivity of the situation.
Credit Suisse, UBS and the Swiss government declined to comment.
The frenzied weekend negotiations come after a brutal week for banking stocks and efforts in Europe and the US to shore up the sector. US President Joe Biden’s administration moved to backstop consumer deposits while the Swiss central bank lent billions to Credit Suisse to stabilise its shaky balance sheet.
UBS was under pressure from the Swiss authorities to carry out a takeover of its local rival to get the crisis under control, two people with knowledge of the matter said. The plan could see Credit Suisse’s Swiss business spun off.
Switzerland is preparing to use emergency measures to fast-track the deal, the Financial Times reported, citing two people familiar with the situation.
US authorities are involved, working with their Swiss counterparts to help broker a deal, Bloomberg News reported, also citing those familiar with the matter.
British Finance Minister Jeremy Hunt and Bank of England Governor Andrew Bailey are also in regular contact this weekend over the fate of Credit Suisse, a source familiar with the matter said. Spokespeople for the British Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.
Credit Suisse shares lost a quarter of their value in the last week. It was forced to tap USD54 billion in central bank funding as it tries to recover from a string of scandals that have undermined the confidence of investors and clients.
The company ranks among the world’s largest wealth managers and is considered one of 30 global, systemically important banks whose failure would ripple throughout the entire financial system.
The banking sector’s fundamentals are stronger and the global systemic linkages are weaker than during the 2008 global financial crisis, Goldman analyst Lotfi Karoui wrote in a late Friday note to clients. That limits the risk of a “potential vicious circle of counterparty credit losses”, Karoui said.
“However, a more forceful policy response is likely needed to bring some stability,” Karoui said. The bank said the lack of clarity on Credit Suisse’s future will pressure the broader European banking sector.