Crisis time for Credit Suisse talks as UBS seeks Swiss guarantees

Red pedestrian crossing signs outside a Credit Suisse Group AG bank branch in Basel, Switzerland, on Tuesday, October 25, 2022.

Stefan Wermuth | Bloomberg | Getty Images

Conversations about the rescue Swiss credit rolled up on sunday com UBS asked the Swiss government for $6 billion to cover costs if it were to buy its struggling rival, a person familiar with the talks said.

Authorities are struggling to resolve a crisis of confidence at 167-year-old Credit Suisse, the world’s biggest bank caught up in the turmoil caused by the collapse of US lenders Silicon Valley Bank and Signature Bank last week .

Although regulators want a resolution before markets reopen on Monday, one source warned that talks are running into major hurdles and that 10,000 jobs may have to be cut if the two banks combine.

The guarantees sought by UBS would cover the cost of liquidating parts of Credit Suisse and possible litigation charges, two people told Reuters.

Credit Suisse, UBS and the Swiss government declined to comment.

Frantic weekend trading follows a brutal week for banking stocks and efforts in Europe and the US to shore up the sector. US President Joe Biden’s administration acted to protect consumer deposits while the Swiss central bank lent billions to Credit Suisse to stabilize its shaky balance sheet.

UBS was under pressure from Swiss authorities to take over its local rival to manage the crisis, two people with knowledge of the matter said. The plan could see Credit Suisse’s Swiss business spun off.

This fund manager shorted Credit Suisse, and is sticking with his bet

Switzerland is preparing to use emergency measures to speed up 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 people familiar with the matter.

Berkshire HathawayWarren Buffett has held discussions with senior Biden administration officials about the banking crisis, a source told Reuters.

The White House and the US Treasury declined to comment.

British Chancellor of the Exchequer 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. Spokesmen for the British Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.

Strong answer

Credit Suisse shares lost a quarter of their value in the past week. The bank was forced to draw on $54 billion in central bank funding as it tries to recover from a series of scandals that have undermined investor and customer confidence.

It is among the world’s largest wealth managers and is considered one of the 30 global systemically important banks; the failure of one would ripple through the entire financial system.

There were multiple reports of interest in Credit Suisse from other rivals. Bloomberg reported that Deutsche Bank was considering buying some of its assets, while the American financial giant BlackRock denied a report that he was participating in a rival bid for the bank.

Interest rate risk

The failure of California-based Silicon Valley Bank highlighted how a relentless campaign of interest rate hikes by the US Federal Reserve and other central banks, including the European Central Bank on Thursday, was pressuring the banking sector

The collapses of SVB and Signature are the largest bank failures in US history behind the demise of Washington Mutual during the 2008 global financial crisis.

First Citizens BancShares is evaluating a bid for SVB and at least one other suitor is seriously considering a bid, Bloomberg News reported Saturday.

People walk past Credit Suisse's New York headquarters on March 15, 2023 in New York City.

Failure or sale? What could be next for the beleaguered Credit Suisse

Global banking stocks have been hit since SVB collapsed, with the S&P Banks index down 22%, its biggest loss in two weeks since the pandemic rocked markets in March 2020.

Big US banks throw $30bn lifeline to smaller lenders First Republic. US banks have sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days.

The Mid-Size Bank Coalition of America asked regulators to extend federal insurance to all deposits over the next two years, Bloomberg News reported Saturday, citing a letter from the coalition.

In Washington, attention has turned to greater oversight to ensure banks and their executives are held accountable.

UBS in talks to acquire all or part of Credit Suisse

Biden called on Congress to give regulators more power over the industry, including imposing higher fines, clawing back funds and barring officials from failed banks.

Rapid and dramatic events can mean big banks get bigger, smaller banks can struggle to keep up, and more regional lenders can close.

“People are moving their money around, all of these banks are going to look fundamentally different in three months, six months,” said Keith Noreika, vice president of Patomak Global Partners and a former Republican U.S. comptroller of the currency.

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