UBS nears takeover of Credit Suisse in mammoth deal to ease investor fears

UBS nears takeover of Credit Suisse in mammoth deal to ease investor fears

Swiss bank UBS is reportedly racing against time to complete a takeover of rival Credit Suisse to stave off investor panic when the markets open on Monday. The country’s biggest banks are said to be in urgent talks, with the government, central bank, and financial regulators all involved. Switzerland’s authorities are urging UBS to push through the deal and avoid potential damage to the markets. The Swiss government, President Alain Berset, and the banks’ executives have been seen heading to the finance ministry in Bern for talks over the weekend.

A deal of this scale could take several months, but UBS reportedly had a few days to get it done. Under normal Swiss rules, UBS would have to consult shareholders over six weeks, but it can skip this process using emergency measures. Public guarantees would also be required to cover legal costs and possible losses. Credit Suisse, the Swiss financial watchdog FINMA, and the SNB central bank have declined to comment on the negotiations, while the government has yet to respond to the matter.

According to Blick newspaper, UBS is expected to buy Credit Suisse in a meeting held in Bern, which has been referred to as “the merger of the century.” The report added that Switzerland’s economic and financial partners have put pressure on UBS to overcome its reluctance and push through the deal. There is a fear that Credit Suisse could trigger a global financial crisis, considering it is one of the 30 banks worldwide deemed too big to fail.

Market reaction and scandals

Credit Suisse’s customers reportedly withdrew 10 billion Swiss francs ($10.8 billion) in deposits in one day late last week, indicating that the bank’s falling market value and reputation have eroded trust in the bank. Credit Suisse has faced scandals in recent years and has been worth only over $8.7 billion by Friday evening, compared to 12.78 Swiss francs in February 2021. In 2022, the bank suffered a net loss of $7.9 billion and expects a “substantial” pre-tax loss this year.

Credit Suisse and UBS are considered Global Systemically Important Banks (GSIBs), which are of such importance to the international banking system that they are deemed too big to fail. However, Credit Suisse’s perceived weakness has led to fears of contagion in the markets after the collapse of two US banks. The bank’s share price has plunged by over 30% recently, with FINMA and the SNB stating that Credit Suisse “meets the capital and liquidity requirements” imposed on such banks.

Conclusion

UBS is nearing a takeover of Credit Suisse to prevent a wave of panic in the markets when they open on Monday. Swiss authorities are urging UBS to make the deal happen and avoid the risk of contagion. A merger of this scale would usually take months, but UBS has reportedly had only a few days to finalize the deal. Credit Suisse is one of 30 banks worldwide deemed too big to fail, and its current perceived weakness has led to concerns over possible contagion. Credit Suisse has faced several scandals in recent years, with its market value and reputation suffering as a result.

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