Will UBS buy Credit Suisse? Only with guarantees from the central bank

Communications about Credit Suisse's (CS) relationship with fellow Swiss banking giant, the Union des Banques Suisses (UBS) have been mixed over the past week. On Thursday UBS did not seem to consider a merger between the two banks probable, but on Friday it seemed to have changed its mind and said it was willing to marry, or rather save, its unfortunate sister.

What is this change of attitude due to? Evidently due to the fact that UBS must have received from the public authorities, especially from the Swiss National Bank (SNB), the necessary guarantees not to suffer damage from the operation. Bloomberg, Reuters and the WSJ are reporting that UBS is asking the Swiss government for a backstop to hedge future risks should it buy Credit Suisse Group AG, after the Swiss National Bank and regulator Finma told international counterparties they consider a deal with UBS as the only option to halt the collapse of confidence in Credit Suisse . The FT reported that deposit outflows from the bank exceeded 10 billion Swiss francs ($10.8 billion) a day late last week as fears grew about its health.

UBS is reportedly discussing scenarios in which the government would shoulder certain legal costs and potential losses in any deal . Credit Suisse set aside 1.2 billion Swiss francs in legal provisions in 2022 and warned that unresolved lawsuits and regulatory investigations could add another 1.2 billion Swiss francs.

UBS also wants to be allowed to phase in the operating restrictions it would face under global capital rules for the world's largest banks.

The secret talks are taking place as Switzerland's biggest bank is exploring an urgent takeover of all or part of its smaller rival, at the request of regulators, to halt a crisis of confidence that local authorities hope will end on Saturday.

In a likely scenario, the deal would involve UBS acquiring Credit Suisse to obtain its wealth management and asset management businesses, while divesting its investment banking division, which has become the laughing stock of Wall Street after being a of the most iconic groups less than two decades ago. Talks are also still ongoing on the fate of Credit Suisse's lucrative Swiss universal bank.

According to the FT, the two banks' boards of directors will meet this weekend as Credit Suisse regulators in the US, UK and Switzerland are assessing the legal structure of a settlement and several concessions requested by UBS.

UBS wants to be allowed to gradually reduce the demands it would face under global capital rules for the world's largest banks. In addition, UBS has sought some form of indemnity or government settlement to cover future legal costs, which hang over CS over a series of scandals that have undermined confidence in CS.

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Article UBS Will Buy Credit Suisse? Only with central bank guarantees comes from Scenari Economici .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/ubs-comprera-credit-suisse-solo-con-garanzie-da-parte-della-banca-centrale/ on Sun, 19 Mar 2023 08:00:38 +0000.