UBS nears deal to take over Credit Suisse: Report

UBS is close to taking over Credit Suisse as part of an effort by Swiss and global authorities to restore trust in the banking system. Regulators have offered to waive customary shareholder votes to expedite the sale. Credit Suisse has faced as much as $10 billion in outflows a day, and there are concerns it will become insolvent next week if not dealt with. 

As two systemically significant banks in Switzerland and worldwide, a merger of the two could entail supplementary supervision and capital fees. Moreover, any such amalgamation is likely to lead to significant job cuts, going beyond the 9,000 positions that Credit Suisse has already pledged to eliminate. The Swiss authorities are anticipated to finalize a tentative agreement before the commencement of Monday's market activities.

However, a source has told Reuters that talks are facing significant obstacles, and the merger of the two banks may result in the loss of 10,000 jobs. UBS is requesting guarantees that would cover the expenses of shutting down specific areas of Credit Suisse and the possibility of litigation charges.

Credit Suisse has a substantial Swiss retail arm whose status remains a sticking point in the talks. It is estimated to be worth $10 billion and could create a domestic-banking behemoth with around 30 per cent of the country's domestic loans and deposits. Combining it directly with UBS would give UBS prized businesses such as wealth-management clients in Asia and the Middle East but might come with less desirable units, such as Credit Suisse's troubled investment bank.

UBS has long been seen as part of any state-backed solution for Credit Suisse, whose balance sheet is roughly half the size of UBS's $1.1 trillion in total assets. A full-scale takeover would give UBS prized businesses within Credit Suisse but might come with less desirable units, such as Credit Suisse's troubled investment bank. Additionally, this could disrupt UBS's current approach and undermine its perceived reliability among investors.

Other financial institutions are examining the situation to see if they can buy parts of Credit Suisse or back bids, and large asset managers have long coveted some of the bank's investing businesses. Despite several offers, Credit Suisse's executives have consistently rejected them, asserting that asset management constituted a fundamental aspect of its operations.

Credit Suisse's slide toward state assistance came after other banks and large investors pulled back from doing business with the Swiss lender. Other investment firms stopped trading with the bank in the fall as its years-long problems got worse. The decision to employ UBS to rescue Credit Suisse signifies a reversal from almost 15 years ago when UBS received a bailout from Switzerland after being burdened with billions of toxic assets in its US operations.

Rising Interest Rate Conundrum
 
The collapse of Silicon Valley Bank in California has highlighted how the banking sector is being pressured by a persistent campaign of interest rate hikes by the U.S. Federal Reserve and other central banks, including the European Central Bank, which raised rates on Thursday.

The failures of SVB and Signature mark the second-largest bank collapses in US history, trailing only the 2008 global financial crisis demise of Washington Mutual.

The banking sector has suffered globally since the collapse of SVB, with the S&P Banks index experiencing a 22 per cent decline, its largest two-week loss since the pandemic shook markets in March 2020.

(With Agency inputs)

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