UBS bank pushed to buy Credit Suisse and avoid a debacle

published on Saturday 18 March 2023 at 11:44pm

Switzerland’s largest bank, UBS, was forced by authorities to buy rival Credit Suisse to avoid a debacle, multiple media outlets said on Saturday, in a bid to reassure investors and avoid a contagious panic in markets on Monday.

UBS will buy Credit Suisse and the deal will be sealed on Sunday during an extraordinary meeting of the government and top management of the two banking giants in Bern, the generally well-informed daily Blick said on Saturday.

– Pressure –

He stresses that the authorities have no other choice, due to the enormous pressure exerted by Switzerland’s main economic and financial partners who fear for their financial centre.

Bruno Le Maire, French finance minister, sent a clear message on Le Parisien: “We are now waiting for a definitive and structural solution to the problems of this bank”.

The US Treasury had also indicated that it was following the case closely.

The Swiss market opens at 08:00 GMT on Monday, by then all will need to be settled for the bank perceived to be a weak link in the sector.

At Wednesday’s stock market close after a record low, Credit Suisse was worth just 7 billion Swiss francs (about as many euros), a pittance for a bank that is part – like UBS – of the 30 establishments in the world that are considered too important to allow them to fail.

But according to the Financial Times and Blick the bank’s customers withdrew 10 billion Swiss francs in deposits in a single day at the end of last week. A tangible sign of distrust of the establishment.

– Public guarantees –

So how to reassure? According to the Bloomberg agency, which cites anonymous sources, UBS requires public authorities to bear the legal costs and potential losses that can amount to billions of francs.

The discussions stumble over the investment bank, indicates the financial agency, one of the scenarios being studied is that of an acquisition only of assets and wealth management with the sale of the investment bank.

Discussions also focus on the fate of Credit Suisse’s Swiss branch, one of the group’s lucrative parts that lost 7.3 billion Swiss francs last year and is still counting on “substantial” losses in 2023.

This branch brings together retail banking and SME lending. One of the avenues considered by analysts is that of an IPO, which would also avoid massive layoffs in Switzerland due to duplication with UBS’s activities.

On Wednesday, mistrust from investors and partners prompted the Swiss central bank to lend 50 billion Swiss francs to revitalize Credit Suisse and reassure markets. However, the respite was only short-lived.

Buying the bank today wouldn’t be expensive, but an acquisition of this size is extremely complex, especially when done in a hurry.

– And the Competition Commission? –

Credit Suisse has just experienced two years marked by numerous scandals which have revealed, by management’s own admission, “substantial weaknesses” in its “internal control”.

The Swiss financial market supervisory authority (Finma) accused him of having “seriously violated his prudential obligations” in the bankruptcy of the Greensill financial company which marked the beginning of his setbacks.

Conversely, UBS, which spent several years recovering from the shock of the 2008 financial crisis, is starting to reap the benefits of its efforts and, according to various media outlets, the bank had no plans before the weekend to embark on the venture of Credit Suisse.

The Competition Commission could also raise eyebrows depending on the configuration of the acquisition.

– Faster, stronger –

In late October, Credit Suisse unveiled a sweeping restructuring plan that called for the elimination of 9,000 jobs by 2025, or more than 17% of its workforce.

The bank, which employed 52,000 people at the end of October, plans to separate investment banking from the rest of its businesses to refocus on its more stable parts, including wealth management.

But as Blick points out: “Everything points to a Swiss solution this Sunday. And when the stock market opens on Monday, Credit Suisse could be a thing of the past.”