UBS Takeover of Credit Suisse Could Be Imminent: Reports

The $1 billion offer represents one-eighth the value at which the stock market valued Credit Suisse on Friday. Credit Suisse is pushing back against that price, Bloomberg News reported later on Sunday, because it would all but wipe out the bank’s shareholders without giving those shareholders a say on the matter.

The deal, led by Swiss regulators, could involve UBS (UBS) buying Credit Suisse and spinning off its local Swiss banking operations into an independent entity, The Wall Street Journal reported on Sunday, citing people familiar with the matter. UBS would keep Credit Suisse’s wealth management business, the report said.

Wealth management is the bank business that a UBS-Credit Suisse merger would most affect. Clients who have had split funds between the two Swiss banks would likely move some money to a different bank, to maintain diversification.

Credit Suisse declined to comment on the reports, while UBS didn’t respond to Barron’s request for comment.

BlackRock

(BLK) was previously cited as another possible suitor, although the asset manager has since publicly denied that it’s involved in a takeover.

Swiss rules would normally require a six-week interval to complete such a deal, to allow time for shareholders to approve it. However, the FT’s sources said, regulators may allow UBS to skip that period through the use of emergency measures, underscoring how quickly the parties are moving to try to reach an agreement.

The urgency for a deal comes as investors continue to pull money from Credit Suisse, which saw outflows of nearly $11 billion a day late this past week. The bank also saw more than $450 million in net outflows from its U.S. and European managed funds from March 13 to 15, Morningstar Direct said on Friday, as retail and institutional counterparties pulled money out of funds managed by the embattled Swiss lender.

The prospective end of Credit Suisse as a stand-alone entity 167 years after its founding isn’t entirely a surprise: The bank has dealt with a string of problems in recent years, from worries about its financial controls to government probes, courtroom setbacks, and several quarters of eye-watering losses, among other issues, that have left investors wondering if it will survive.

Yet pressure for a resolution has become supercharged in recent weeks, in the wake of high-profile bank failures in the U.S., most notably Silicon Valley Bank, whose assets are also in the market for a buyer.

SVB’s closing touched off worldwide fears about the health of the industry, leading many customers to try to withdraw their funds and putting particular pressure on weaker banks’ stocks amid big market swings. Credit Suisse shares fell more than 17% over the past five trading days, and have lost over a third of their value so far in 2023.  

UBS was also hit by the selloff in financial stocks, falling more than 7% in the past week, although it’s down just 4% this year.

According to the FT’s sources, talks are now centered on concessions UBS is seeking should it go through with a deal. The bank wants to be able to phase in any global capital regulations over time and secure protection from ongoing legal costs, which Credit Suisse has previously warned could be $2 billion.

Reuters reports that UBS is seeking around $6 billion in government guarantees, citing its own sources close to the situation, who emphasize that talks are ongoing and that figure could change.

If the deal were to happen, it would be a meaningful development in the continuing bank saga for several reasons.

First, it demonstrates that the crisis of confidence in the U.S. has sparked truly global jitters. While Credit Suisse’s problems have been building for some time, the situation snowballed quickly because of the concerns ignited by the recent fall of Silvergate Bank, Silicon Valley Bank, and Signature Bank.

In 2018, U.S. legislation released regional banks like Silicon Valley from the strictest rules of the 2010 Dodd-Frank Act, by raising the asset threshold for “systemically important financial institutions” from $50 billion to $250 billion. The domino effect of Silicon Valley’s failure has reached Credit Suisse and shown that smaller banks were indeed systemically important.

The world’s money and its banks are a system, and it’s not just Washington that’s urgently looking to avoid any further damage to the financial sector. The Swiss cabinet met for an emergency meeting on Saturday to discuss the deal and the potential waiving of typical merger waiting periods.

Finally, a deal would take a very troubled player off the table. Credit Suisse shares are down 75% in the past 12 months, so it was a likely candidate to succumb to expanding stress on ailing banks. If UBS were to buy it, that would resolve one longstanding worry that would otherwise remain another overhang for the sector.

Write to Teresa Rivas at [email protected] and [email protected]