Switzerland’s biggest bank UBS is being pressured by authorities to buy rival Credit Suisse to avoid a debacle, multiple media outlets said on Saturday, trying to reassure investors and avoid contagious panic in markets on Monday.
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UBS will buy Credit Suisse and the deal will be sealed on Sunday at an extraordinary meeting of the government and the heads of the two banking giants in Bern, the generally well-informed daily Blick said on Saturday.
He emphasizes that the authorities have no other choice due to the enormous pressure from Switzerland’s major economic and financial partners, who fear for their own financial center.
Bruno Le Maire, the French finance minister, made the message clear in Le Parisien: “We are now awaiting a definitive and structural solution to the problems of this bank”.
The US Treasury Department had also indicated that it would follow the case closely.
The Swiss market opens at 8am GMT on Monday, by which time everything needs to be settled for the bank, which is perceived as the weak link in the industry.
At the close of trading on Wednesday, Credit Suisse was worth almost 7 billion Swiss francs (about as many euros) after a record fall, a plight for a bank that – like UBS – is one of the 30 institutions worldwide considered too important to them to fail.
But late last week, according to the Financial Times and Blick, the bank’s customers withdrew 10 billion Swiss francs in deposits in a single day. A tangible sign of mistrust of the establishment.
So how to calm down? According to the Bloomberg agency, which cites anonymous sources, UBS is demanding that the public sector bear legal costs and possible damages, which can amount to billions of francs.
The discussions stumble over the investment bank, says the finance agency. One of the scenarios examined is a pure takeover of asset management with a sale of the investment bank.
Discussions also focus on the fate of Credit Suisse’s Swiss branch, one of the profitable parts of the group, which lost CHF7.3 billion last year and still expects “significant” losses in 2023.
This branch brings together retail banking and lending to SMEs. One of the avenues analysts are considering is that of an IPO, which would also avoid massive layoffs in Switzerland due to duplication with UBS’s activities.
On Wednesday, mistrust from investors and partners prompted the Swiss central bank to lend 50 billion Swiss francs to breathe new life into Credit Suisse and calm markets. The respite was short-lived, however.
Buying the bank wouldn’t be expensive today, but an acquisition of this magnitude is extremely complex, especially when done in a hurry.
Credit Suisse has just endured two years marked by several scandals that management says revealed “significant weaknesses” in its “internal controls.”
The Swiss Financial Market Supervisory Authority (Finma) accused him of “seriously breaching his supervisory duties” when the financial company Greensill went bankrupt, which marked the beginning of his setbacks.
In contrast, UBS, which has been recovering for several years from the shock of the 2008 financial crisis, is beginning to reap the rewards of its efforts and, according to several media outlets, the bank had no intention of embarking on the Credit Suisse adventure before the weekend.
Depending on how the takeover is structured, WEKO could also raise eyebrows.
At the end of October, Credit Suisse unveiled a comprehensive restructuring plan that envisages cutting 9,000 jobs, or more than 17% of its workforce, by 2025.
The bank, which employed 52,000 people at the end of October, plans to separate investment banking from the rest of its operations to refocus on its most stable areas, including wealth management.
But as Blick emphasizes: “Everything points to a Swiss solution this Sunday. And when the stock market opens on Monday, Credit Suisse could be a thing of the past.”