Under pressure from supervisors, UBS is negotiating with the crisis bank Credit Suisse

According to the FT, the Swiss financial regulator has informed its US and UK counterparts that this is the preferred solution to the Credit Suisse crisis. The management bodies of both banks are to initially discuss the merger individually at the weekend. According to information from financial circles, however, it is uncertain whether a deal will come about. The concerns of the management teams on both sides are great.

Insiders therefore expect that UBS will enter the negotiations with Credit Suisse organized by the Swiss National Bank and financial regulator Finma with maximum demands. For example, UBS could try to negotiate some kind of loss limit guaranteed by the Swiss government.

Credit Suisse and UBS declined to comment. The stock exchange reacted promptly to the news: Credit Suisse shares listed in the USA suddenly rose in price by around nine percent.

Should UBS actually take over Credit Suisse, the Swiss supervisors would have prevailed against UBS’s resistance. When asked about takeover rumors, UBS boss Ralph Hamers always emphasized that he wanted to focus on growing his own wealth management. In Switzerland, too, the step was considered politically unpopular with a view to possible job losses.

Merger with big risks

On Wednesday, the thoughtless and possibly misleading statement by a major Saudi shareholder plunged Credit Suisse into chaos. The stock fell at times by more than 30 percent. A liquidity injection from the Swiss National Bank (SNB) of 50 billion francs (50.7 billion euros) gave the bank only a short breath.

The fact that the supervisors now want to push through a takeover by UBS suggests that the outflow of customer money over the past week had become too large.

A takeover of Credit Suisse by UBS had recently been repeatedly calculated by investment bankers and analysts. For example, Kian Abouhossein, a banking analyst at JP Morgan, believes a sale to local rivals is the most likely option.

Should this scenario occur, an IPO or a spin-off of the Swiss business would probably follow for reasons of competition law, since UBS and Credit Suisse would together have a dominant position in their home market. The division could be worth around ten billion francs, the analysts estimate.

One argument against a merger of the two largest Swiss financial institutions has always been that both banks could cannibalize themselves in the event of a merger. Many Swiss companies as well as wealthy private individuals have an account with both UBS and Credit Suisse.

You want to avoid parking all of your cash or liquid assets at a bank. Many customers are therefore likely to withdraw part of their assets after the merger. Any synergies on the Swiss home market would thus be reduced. The Swiss cantonal banks on the one hand and the private banks on the other could be the winners of such a merger.

Too big to fail

What’s more, should UBS gobble up Credit Suisse, the result would be a banking giant that would be far too big to fail. A purchase of Credit Suisse by UBS would be the most important bank merger in Europe since the financial crisis. The merger would create a European giant.

>> Read here: How it came to the deep fall of Credit Suisse

The total assets of UBS in 2022 amounted to the equivalent of 1,030 billion euros, that of Credit Suisse to the equivalent of 535.44 billion euros. UBS had a profit of $7.6 billion in 2022. Credit Suisse, on the other hand, reported a loss of CHF 7.3 billion. UBS currently employs over 72,000 people and Credit Suisse over 50,000.

Financially, the acquisition would probably not be a major problem for UBS: the smaller rival is only worth 7.4 billion francs on the stock exchange, while UBS is around 60 billion francs. However, the takeover of a major bank is considered to be highly complex, lengthy and risky.

However, a takeover by UBS would not be the only possible solution to the Credit Suisse crisis. Secondly, rumors about another purchase offer made the rounds on Saturday. The “FT” wrote that the fund giant BlackRock is working on a competitive offer for Credit Suisse. However, a spokesman for the US group denied the report: “BlackRock is not involved in plans to acquire all or part of Credit Suisse and has no interest in doing so.”

Theoretically, according to investment bankers, the investment company Apollo could also be a possible bidder for Credit Suisse. The Americans have already taken over parts of the Swiss investment bank. So far, however, there have been no signs of a concrete interest from Apollo, according to financial circles.

State rescue as an alternative

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. An investment banker specializing in financial deals considers state participation to be the most likely solution.

A temporary state participation would avoid the disadvantages of a takeover by UBS and give Credit Suisse enough time for the planned thorough restructuring. However, a state bailout would be a defeat for the Swiss government, because after participating in UBS in the financial crisis of 2008, the authorities made great efforts to prevent similar support measures in the future. For example, the capital regulations were tightened and preparatory measures were taken for the resolution of banks.

Banking analyst Abouhossein also considers a direct participation by the state to be rather unlikely because this would dilute the shares of the previous shareholders. In addition, the government would risk taxpayers’ money for a failing bank and it is questionable whether that can still be enforced politically today.

More: You can read all developments regarding the banking crisis in the news blog.