Critical weekend for Credit Suisse

A critical weekend has begun for the ailing major bank Credit Suisse. To get the bank struggling with a massive loss of confidence back on track, according to an insider, Swiss regulators are urging UBS to swallow up all or part of its smaller rival. The merger of the two banks is the “Plan A” of the financial market authority Finma and the Swiss National Bank (SNB), also wrote the “Financial Times” on Friday evening.

Credit Suisse shares rose 9 percent in following-hours trading. A purchase of Credit Suisse by UBS would be the most important bank merger in Europe since the financial crisis. Separate meetings of the boards of directors of the two companies were scheduled for the weekend to discuss the issue, the Financial Times reported. Other options are also on the table. The aim of the SNB is for the parties to agree on a straightforward solution by the start of trading on Monday. UBS and Credit Suisse declined to comment on the report.

A second report by the Financial Times said fund giant BlackRock was preparing a bid to compete with Credit Suisse. A spokesman for the US group said: “BlackRock is not involved in any plans to acquire all or part of Credit Suisse and has no interest in doing so.

Credit Suisse is the world’s largest money house, which got caught up in the whirlwind of the defunct US institutes Silicon Valley Bank (SVB) and Signature Bank, although it has hardly anything in the fire at SVB itself. In the middle of the week, the 167-year-old Swiss bank had to use emergency loans from the SNB with a volume of up to CHF 50 billion (around EUR 50 billion). It is the first time since the financial crisis of 2007 that a central bank has felt compelled to provide support for such a large bank.

This intervention temporarily calmed the situation, but was apparently not enough to break the downward spiral. Not only is the flight of private customers affecting Zürcher Bank, business with other financial institutions is also becoming increasingly difficult. At least four major firms, including Deutsche Bank and Societe Generale, have restricted their dealings with Credit Suisse or its securities, according to five people with direct knowledge of the matter.

According to insiders, extraordinary meetings have been scheduled for the weekend. This also included teams from CFO Dixit Joshi. Financial data should be processed and scenarios for the future of the institute should be worked out. According to another person familiar with the matter, both banks have reservations regarding a merger. Nor would regulators have the power to force a merger.

If UBS and Credit Suisse came together, they would create a European giant. UBS currently employs over 72,000 people and Credit Suisse over 50,000. Given the overlaps, a merger would probably result in thousands of job cuts. Because of the high market shares in the home market, the question also arises as to whether the competition authorities would wave a merger through. It is conceivable, for example, that the Swiss business of Credit Suisse will be spun off. The institute made the preparations for this a few years ago in connection with stock exchange plans that were later abandoned.

UBS has also repeatedly made it clear publicly that it wants nothing to do with a takeover of Credit Suisse, most recently on Tuesday. In January, Colm Kelleher, Chairman of the Board of Directors, said: “We also have no desire to buy Credit Suisse.” There is no convincing scenario for such a transaction.

UBS is on a good run: in 2022, the world’s largest wealth manager for the rich and super-rich made a profit of $7.63 billion, the best result in 16 years. Credit Suisse, on the other hand, suffered a loss of CHF 7.3 billion.

UBS wants to grow primarily in the business with wealthy US private clients. Credit Suisse, on the other hand, has largely withdrawn from this business. However, Credit Suisse’s asset management business, particularly in Asia, might be attractive for UBS. In addition, she might probably buy the smaller rival at a bargain price. Credit Suisse is only worth 7.4 billion Swiss francs on the stock exchange, UBS around 60 billion Swiss francs. However, the takeover of a major bank is considered to be highly complex, lengthy and risky.

Experts consider the takeover by a major foreign bank to be rather unlikely and there may not be enough time for a split into several parts. Should UBS decline, direct state aid such as buying a stake would be another option. However, Switzerland would have to swallow a fat toad with that. Because following the state rescue of UBS in 2008, the authorities made great efforts to prevent a similar event in the future. For example, the capital regulations were tightened and preparatory measures were taken for the resolution of banks.

So far, the government in Bern has remained silent regarding the situation at Credit Suisse. But politicians are under enormous international pressure to stabilize Credit Suisse. Because there is a lot at stake. According to experts, if the institute collapses uncontrollably, another global financial crisis is imminent.