After Credit Suisse Group AG announced it would borrow 50 billion Swiss francs from the Swiss National Bank, UBS Group AG is reportedly considering acquiring the banking giant. However, UBS is asking the government to issue a backstop to protect against any loss in the event of a purchase of Credit Suisse. According to unnamed sources familiar with the matter, UBS, which is the world’s largest private bank, wants the government to protect the deal.
Credit Suisse problems worsen as UBS eyes recovery amid banking sector challenges
Many transactions take place behind the scenes in the modern banking world. On Friday, it was announced that UBS Group AG was in talks to acquire all or part of banking giant Credit Suisse Group AG. Sources familiar with the discussions say that the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank are involved in the discussions between UBS and Credit Suisse. Swiss regulators note that the merger, dubbed “Plan A,” is an attempt to bolster investor and depositor confidence in Credit Suisse. On Thursday, Credit Suisse said it was borrowing 50 billion Swiss francs ($54 billion) from the Swiss National Bank to bolster liquidity.
On Saturday, Bloomberg and several other publications reported that merger talks have intensified and UBS wants protection against potential losses it could face if it acquires Credit Suisse. Bloomberg contributors Jan-Henrik Foerster, Dinesh Nair, Marion Halftermeyer and Esteban Duarte clarified that UBS was discussing specific scenarios with the Swiss government. According to sources familiar with the matter who requested anonymity, UBS is interested in Credit Suisse’s wealth and asset management units, but the bank wants a government-brokered deal that includes a backstop.
The report further stated that prior to the Swiss government-brokered talks, UBS executives were reluctant to acquire the rival bank and take on the risks associated with Credit Suisse. Sources familiar with the matter told Reuters that Credit Suisse Chief Financial Officer Dixit Joshi and his team met over the weekend to discuss the bank’s options. Besides UBS, the report notes that there have been several reports of interest from competitors. This is not the first sign of trouble for the Swiss bank, as Credit Suisse and Deutsche Bank suffered from struggling valuations in October last year. At that time, the banking giant’s credit insurance was approaching 2008 levels.
Credit Suisse’s current problems intensified after the bankruptcies of Silvergate Bank, Silicon Valley Bank and Signature Bank. Additionally, 11 lenders injected $30 billion into First Republic Bank last week to prevent the bank from collapsing. Over the past seven days, Credit Suisse shares have lost about a quarter of their value. Year-to-date, Credit Suisse shares have fallen 35.58%.
Should the Swiss government provide a safety net to protect UBS’s acquisition of Credit Suisse? In the comments section below, let us know what you think about this topic.
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