Mar 17, 2023
UBS to Explore Credit Suisse Deal in Crisis Combination
(Bloomberg) -- UBS Group AG is exploring an acquisition of all or parts of Credit Suisse Group AG at the urging of Swiss regulators after its smaller rival was pummeled by a crisis of confidence, according to people with knowledge of the matter.
Swiss officials are pushing UBS to look at various ways it could be involved with a solution for Credit Suisse, the people said, asking not to be identified describing private discussions. The deliberations are ongoing and it’s unclear whether any deal will result, the people said.
The boards at Switzerland’s top two banks expect to meet separately this weekend to weigh the idea of a combination, with talks orchestrated by the Swiss National Bank and regulator Finma, according to the Financial Times, which reported the deliberations earlier Friday.
Spokespeople for UBS and Credit Suisse declined to comment.
The goal is for an announcement of a deal between the two banks by Sunday evening at the latest, according to a person familiar with the matter, who also asked not to be identified discussing the talks. The situation, however, remains fluid and could change.
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 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.
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. UBS traces its roots back through some 370 separate institutions over 160 years, culminating in the merger of the Union Bank of Switzerland and the Swiss Bank Corporation in 1998. After emerging from a state bailout during the 2008 financial crisis, UBS built a reputation as one of the world’s largest wealth managers, catering to high- and ultra-high net worth individuals globally.
Like its Zurich neighbor, Credit Suisse owes its status to the expansion of Switzerland’s industrial might since the 19th century. The former Schweizerische Kreditanstalt was founded by industrialist Alfred Escher in 1856 to finance the build-out of the mountainous nation’s railway network. Having dodged state-aid during the last financial crisis, Credit Suisse and UBS have developed a global rivalry that leverages Switzerland’s reputation for discreet management of wealth.
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 Chairman Axel Lehmann and Chief Executive Officer Ulrich Koerner are former decision-makers at UBS.
The government, central bank and Finma have been in close contact to discuss further ways to stabilize Credit Suisse, Bloomberg reported earlier this week. Ideas floated included a separation of the bank’s Swiss unit and an orchestrated tie-up with UBS, people familiar with the matter said previously. Executives at UBS and Credit Suisse had been opposed to such an arranged combination, people familiar with the matter said earlier this week.
UBS would prefer to focus on its own wealth-centric standalone strategy and is reluctant to take on risks related to Credit Suisse, the people said, asking not to be identified as the deliberations are private. Credit Suisse is seeking time to see through its turnaround after winning the $54 billion credit line from the central bank, they said.
Credit Suisse could also pursue a breakup of the lender, with the wealth management business going to UBS, the Swiss unit being separated as a new entity to protect Swiss deposits and the asset management and investment banking operations being divested or separated, two people said previously.
Credit Suisse’s market value has plunged to about 7.4 billion Swiss francs ($8 billion), from a 2007 peak of more than 100 billion francs. UBS’s market value is 60 billion francs.
Credit Suisse, which traces its roots back to 1856, has been hammered over recent years by a series of blowups, scandals, leadership changes and legal issues. The company’s 7.3 billion franc loss last year wiped out the previous decade’s worth of profits.
Clients pulled more than $100 billion 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.
--With assistance from Marion Halftermeyer, Gillian Tan and Steven Arons.
(Updates with historical context)
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