18 March 2023
After Credit Suisse Group AG announced it would borrow 50 billion Swiss francs from the Swiss National Bank, UBS Group AG is reportedly considering acquiring the banking giant. However, UBS is requesting that the government issue a backstop to protect against any losses if it purchases Credit Suisse. According to unnamed sources familiar with the matter, UBS, which is the world’s largest private bank, wants the government to safeguard the deal.
There are many deals happening behind the scenes in the modern banking world. On Friday, it was reported that UBS Group AG is in discussions to acquire all or parts of the banking giant Credit Suisse Group AG. Sources familiar with the talks say that the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank are involved in the discussions between UBS and Credit Suisse. Regulators from Switzerland note that the merger, called “Plan A,” is an attempt to bolster investor and depositor confidence in Credit Suisse. On Thursday, Credit Suisse announced it was borrowing 50 billion Swiss francs ($54 billion) from the Swiss National Bank to bolster liquidity.
On Saturday, Bloomberg and several other publications reported that merger talks have intensified, and UBS wants protection against potential losses it may face if it acquires Credit Suisse. Bloomberg contributors Jan-Henrik Foerster, Dinesh Nair, Marion Halftermeyer, and Esteban Duarte detailed that UBS is discussing specific scenarios with the Swiss government. According to sources familiar with the matter who requested anonymity, UBS is interested in Credit Suisse’s wealth and asset management units, but the bank wants a government-brokered deal that includes a backstop.
The report further stated that before the Swiss government-brokered discussions, UBS executives were hesitant to acquire the competitor bank and take on the risks associated with Credit Suisse. Sources familiar with the matter told Reuters that Credit Suisse’s chief financial officer Dixit Joshi and his team convened over the weekend to discuss the bank’s options. Besides UBS, the report notes there were multiple reports of interest from rivals. This is not the first sign of trouble for the Swiss bank, as Credit Suisse and Deutsche Bank suffered from distressed valuations in October of last year. At that time, the banking giant’s credit default insurance approached 2008 levels.
Credit Suisse’s current issues intensified after the failures of Silvergate Bank, Silicon Valley Bank, and Signature Bank. In addition, 11 lenders injected $30 billion into First Republic Bank last week to prevent the bank from collapsing. Over the last seven days, Credit Suisse’s shares have lost about a quarter of their value. Year-to-date, Credit Suisse’s stock has declined by 35.58%.
Should the Swiss government provide a backstop to protect UBS’s acquisition of Credit Suisse? In the comments section below, let us know what you think about this subject.
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