UBS Group and Swiss officials are racing to put together a deal for the firm to take over battered rival Credit Suisse Group this weekend as they seek to navigate thorny issues such as a government backstop and the fate of the smaller firm’s investment bank.
At the prodding of regulators, UBS has put aside its initial opposition to a deal and is exploring possible structures that could be executed quickly to halt a deep crisis of confidence, people briefed on the discussions said.
UBS is asking the Swiss government to take on certain legal costs and potential future losses in any deal, said the people, asking not to be identified describing private discussions.
The complex discussions over what would be the first combination of two global systemically important banks since the financial crisis have seen Swiss and US authorities weigh in, some of the people said.
Still, talks are accelerating and all sides are pushing for a quick solution after a week that saw clients pull money and counterparties step back from some dealings with Credit Suisse.
The goal is for an announcement of a deal between the two banks by Sunday evening, local time, at the latest, the people said.
Under one likely scenario, the deal would involve UBS acquiring Credit Suisse to obtain its wealth and asset management units, while possibly divesting the investment banking division, the people said.
Talks are still ongoing on the fate of Credit Suisse’s profitable Swiss universal bank, which is likely appealing to UBS but may leave the country’s domestic banking sector too concentrated, the people said.
Representatives for UBS, Credit Suisse, and the Swiss finance ministry declined to comment.
A government-brokered deal would address a rout in Credit Suisse that sent shock waves across the global financial system this week when panicked investors dumped its shares and bonds following the collapse of several smaller US lenders.
A liquidity backstop by the Swiss central bank this week briefly arrested the declines, but the market drama carries the risk that clients or counterparties would continue fleeing, with potential ramifications for the broader industry.
Other financial firms including Deutsche Bank are monitoring the situation in case attractive Credit Suisse assets go on the block either in a UBS acquisition or other form of breakup, according to people briefed on those discussions.
The discussions raise questions over the future of Credit Suisse’s bold plan to spin out its investment banking unit under the storied First Boston brand. The firm had been working to legally and operationally separate the business that would become CS First Boston, but those efforts are in nascent stages. Chief executive Ulrich Koerner said this week that the firm was looking at a potential initial public offering for the business in 2025.
Credit Suisse has also been shrinking its trading business, but that still carries a large chunk of the bank’s capital requirements.
“The investment bank is the bit that most people want to spin off,” said James Athey, investment director at Abrdn. “That’s likely where a lot of these exposures are. So that’s the challenge that needs addressing.”
UBS executives had been opposed to an arranged combination with its rival because they wanted to focus on their own wealth management-centric strategy and were reluctant to take on risks related to Credit Suisse, Bloomberg reported earlier this week. Credit Suisse has been unprofitable over the course of the last decade and has racked up billions in legal losses.
Credit Suisse had 1.2 billion Swiss francs ($1.94b) in legal provisions at the end of 2022 and disclosed that it saw reasonably possible losses adding another 1.2 billion francs to that total, with several lawsuits and regulatory probes outstanding, according to Bloomberg Intelligence.
Credit Suisse’s market value has plunged to about 7.4 billion Swiss francs, from a 2007 peak of more than 100 billion francs. UBS’s market value is 60 billion francs. Clients pulled more than $100b of assets in the last three months of last year as concerns mounted about its financial health, and the outflows have continued even after it tapped shareholders in a 4 billion franc capital raise.
A fusion between the two Swiss banking giants, whose headquarters face each other across Zurich’s central Paradeplatz square, would be an historic event for the nation and global finance.
The two banks, both counted by the Financial Stability Board as systemically relevant globally, are interlinked through frequent exchanges of executives from one side of Paradeplatz to the other. Both chair Axel Lehmann and Mr Koerner are former decision-makers at UBS.