© Reuters. FILE PHOTO: A logo is seen on the headquarters of Swiss bank Credit Suisse on Paradeplatz in Zurich, Switzerland March 16, 2023. REUTERS/Denis Balibouse
By Stefania Spezzati, Oliver Hirt and John O’Donnell
(Reuters) – UBS AG is asking the Swiss government to cover about $6 billion in costs if it buys Credit Suisse, a person familiar with the negotiations said, as the two sides race to reach an agreement to restore confidence in this bank. ailing Swiss bank.
167-year-old Credit Suisse is the biggest name caught in the turmoil caused by the collapse of US lenders Silicon Valley Bank and signature bank (NASDAQ:) over the past week, spurring a slump in banking stocks and prompting authorities to rush into extraordinary measures to keep banks alive.
The two told Reuters that the $6 billion government bail UBS is seeking would cover the cost of recalling Credit Suisse parts and potential litigation fees.
One of the sources warned that talks to resolve the crisis of confidence in Credit Suisse are facing significant setbacks and 10,000 jobs could be cut if the two banks come together.
Swiss regulators are racing to come up with a resolution to Credit Suisse before the market reopens on Monday, but the complexity of combining the two giants raises the possibility of negotiations will last until Sunday, said a person who asked to remain anonymous because of the sensitivity of the case. situation.
Credit Suisse, UBS and the Swiss government declined to comment.
The frenetic talks over the weekend come after a brutal week for bank stocks and efforts in Europe and the US to shore up the sector. The administration of US President Joe Biden has moved to support consumer deposits while the Swiss central bank lends billions of dollars to Credit Suisse to stabilize its wobbly balance sheet.
UBS has been under pressure from Swiss authorities to make a takeover of its local rival to keep the crisis under control, two people with knowledge of the matter said. The plan could cause Credit Suisse’s Swiss business to be spun off.
The Financial Times reports that Switzerland is preparing to use emergency measures to speed up the deal.
US authorities are involved, working with their Swiss counterparts to help broker a deal, Bloomberg News reported, citing people familiar with the matter.
British finance minister Jeremy Hunt and Bank of England Governor Andrew Bailey were also in regular communication this weekend about the fate of Credit Suisse, a source familiar with the matter said. Spokespersons for the Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.
STRONG RESPONSE
Credit Suisse shares have lost a quarter of their value in the last week. It was forced to tap $54 billion in central bank funding as it tried to recover from a series of scandals that have eroded investor and customer confidence.
The company ranks among the world’s largest asset managers and is considered one of the 30 globally systemically important banks whose failure would affect the entire financial system.
Goldman analyst Lotfi Karoui wrote in a note late Friday to clients that banking industry fundamentals are stronger and global systemic linkages weaker than during the crisis. global financial markets in 2008. That limits the risk of a “potential vicious cycle of counterparty credit loss,” said Karoui.
“However, a stronger policy response may be required to bring about stability,” said Karoui. The bank said the lack of clarity on Credit Suisse’s future will put pressure on the European banking industry as a whole.
A senior official at China’s central bank said on Saturday that high interest rates in major developed economies could continue to cause problems for the financial system.
There are many reports of interest in Credit Suisse from other competitors. Bloomberg reports that Deutsche Bank (ETR:) is considering the possibility of buying some of its assets, while US financial giant BlackRock (NYSE:) denied reports that it was entering a rival bid for the bank.
INTEREST RATE RISK
The failure of the California-based Silicon Valley Bank has highlighted the relentless campaign of rate hikes by the US Federal Reserve and other central banks – including the European Central Bank. this week – has put pressure on the banking sector. The collapse of SVB and Signature was the second and third largest bank failure in US history following the collapse of Washington Mutual during the 2008 global financial crisis.
Bank stocks globally have been battered since the SVB crash, with the S&P Banks index falling 22%, its biggest drop in two weeks since the pandemic rocked markets in March 2020. .
Major U.S. banks sent a $30 billion grant to smaller lender First Republic, and U.S. banks outright sought a record $153 billion in emergency liquidity la from the Federal Reserve in recent days.
In Washington, the focus has shifted to closer oversight to ensure that banks and their executives are held accountable.
Biden called on Congress to give regulators greater power over the sector, including imposing higher fines, recovering capital and barring officials from failing banks.
