UBS is interested in buying Credit Suisse, but there is a delay in negotiations due to concerns about the risks associated with the Credit Suisse investment bank, which has suffered financial losses and bad publicity. UBS is asking the Swiss government to cover $6 billion in costs for shutting down parts of Credit Suisse and any legal expenses that may arise. However, there are significant problems to be solved at Credit Suisse, and if the acquisition goes ahead, it may result in 10,000 job losses.
The Swiss government is pressuring UBS to buy Credit Suisse quickly, with emergency measures being prepared to speed up the deal, according to sources familiar with the matter. A Goldman analyst notes that the banking industry is in a better position than during the 2008 financial crisis, but more policy action is needed for stability. Uncertainty over the future of Credit Suisse is also causing problems for other banks in Europe. Meanwhile, a China central bank official warns that the high interest rates in wealthy countries could cause issues for the financial system, and reports indicate that several banks are interested in buying Credit Suisse, including Deutsche Bank, while BlackRock has denied involvement.
Credit Suisse's situation has rapidly evolved in the last few days. Initially, UBS declined to buy the struggling bank, prompting the Swiss National Bank to provide a CHF50 billion credit line. However, this did not restore confidence in Credit Suisse, and deposit outflows continued. On Friday (17 March), UBS changed its stance and expressed interest in buying all or part of Credit Suisse, but only with a full central bank backstop. UBS is currently in negotiations with the Swiss government about potentially acquiring Credit Suisse's wealth and asset management units, while potentially selling off the investment banking division. The boards of both banks are meeting this weekend to discuss the deal, and Credit Suisse's regulators in the US, the UK, and Switzerland are examining the legal structure of the agreement. UBS is seeking concessions, including the ability to phase in capital requirements and indemnity for future legal costs.
The timing of the deal between UBS and Credit Suisse remains uncertain, with Bloomberg suggesting it could happen by Sunday (19 March) and the Financial Times predicting Saturday (18 March). Despite initial resistance, UBS is now considering acquiring Credit Suisse's wealth and asset management units while possibly selling off the investment banking division. Credit Suisse's legal troubles and bank run have led it to seek a deal with UBS. However, the situation is complex given Credit Suisse's unprofitability and UBS's relative success. A potential deal would involve UBS taking over some of Credit Suisse's business to restore confidence and prevent further withdrawals.
Swiss regulators prefer a merger between UBS and Credit Suisse to prevent a loss of investor confidence in Credit Suisse, but a deal still needs approval from UBS shareholders. BlackRock has withdrawn from the process due to the preference of Swiss regulators for a Swiss solution. A merger would create one of the largest financial institutions in Europe, but other options are being considered. Credit Suisse's restructuring plan, including job cuts and spinning off the investment bank, has caused investor uncertainty.
In conclusion, the potential acquisition of Credit Suisse by UBS remains uncertain, with negotiations delayed due to concerns over the risks associated with Credit Suisse's investment bank. Despite pressure from the Swiss government and the potential for job losses, UBS is only willing to move forward with a full central bank backstop. The boards of both banks are currently meeting to discuss the deal, and regulators are examining the legal structure of the agreement. While a merger between UBS and Credit Suisse remains the preferred option for Swiss regulators, other potential bidders have been deterred, and UBS is seeking concessions before moving forward. The situation is complex, and the future of Credit Suisse remains uncertain.
Source:
Tyler Durden, 2023-03-18, "UBS Seeks $6 Billion Government Backstop As It Rushes To Finalize Credit Suisse Takeover", https://www.zerohedge.com/markets/ubs-seeks-government-backstop-it-rushes-finalize-credit-suisse-takeover-deal-soon-tonight?utm_source=1304