UBS seeks $6 billion bailout from Swiss government, as Credit Suisse teeters on the brink
UBS AG is seeking a $6 billion bailout from the Swiss government as part of its plan to potentially purchase struggling rival Credit Suisse, according to a person familiar with the talks. The move comes as Credit Suisse faces a crisis of confidence, due to the recent collapse of US lenders Silicon Valley Bank and Signature Bank. As one of the world’s largest wealth managers and a global systemically important bank, the failure of Credit Suisse would have major repercussions throughout the entire financial system.
“The last days of Credit Suisse” proclaimed the front page of Swiss newspaper NZZ am Sonntag, reflecting the mounting fears among regulators about the bank’s future. While authorities are eager to resolve the crisis before markets reopen on Monday, sources caution that the negotiations are encountering significant obstacles, and that as many as 10,000 jobs may be lost if the two banks combine.
UBS is seeking guarantees from the Swiss government that would cover the cost of winding down parts of Credit Suisse and potential litigation charges. The banks declined to comment on the situation.
The frenzied weekend negotiations follow a brutal week for banking stocks worldwide and efforts in both Europe and the United States to stabilize the sector. U.S. President Joe Biden’s administration moved to backstop consumer deposits, while the Swiss central bank lent billions to Credit Suisse to prop up its balance sheet.
UBS has come under pressure from the Swiss authorities to take over its local rival to help resolve the crisis. The plan could see Credit Suisse’s Swiss business spun off, while reports suggest the takeover talks have thrown into doubt plans to hive off its investment bank under the First Boston brand.
Switzerland is preparing to use emergency measures to fast-track the deal, according to the Financial Times. U.S. authorities are also working with their Swiss counterparts to help broker a deal, while the Bank of England has indicated to UBS that it would back the proposed takeover of Credit Suisse, which counts Britain as a key market.
The failure of California-based Silicon Valley Bank has brought into focus how a relentless campaign of interest rate hikes by the U.S. Federal Reserve and other central banks, including the European Central Bank, is putting pressure on the banking sector. Efforts by some U.S. regional banks to raise capital and allay fears about their health face concerns about looming losses in their assets.
For the sake of financial stability, industry executives have called on the Federal Reserve to pause its monetary policy tightening. Senator Elizabeth Warren, who is pushing tighter banking regulation, has called for an investigation into the two failures.
Banking stocks globally have been battered with the S&P Banks index falling 22% in its largest two-week loss since the pandemic shook markets in March 2020. U.S. banks have sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days, while big lenders threw a $30 billion lifeline to smaller lender First Republic.
First Citizens BancShares is evaluating an offer for Silicon Valley Bank, while the Mid-Size Bank Coalition of America has asked regulators to extend federal insurance to all deposits for the next two years. In Washington, focus has turned to greater oversight to ensure that banks and their executives are held accountable, with Biden calling on Congress to give regulators greater power over the sector.
The swift and dramatic events may mean big banks get bigger, while smaller banks strain to keep up and more regional lenders may be forced to shut their doors. Reports suggest that Deutsche Bank is considering buying some of Credit Suisse’s assets, highlighting the ongoing turbulence in the financial sector.
As the situation continues to evolve rapidly, we will closely monitor developments and provide further updates as they become available.#Crunch #time #Credit #Suisse #talks #UBS #seeks #Swiss #assurances #Reuters