UBS Group AG is in emergency talks to buy fellow Swiss banking giant Credit Suisse as authorities bid to stave off turmoil when global markets reopen on Monday (Mar 20), with reports saying UBS has offered to pay up to US$1 billion.
Swiss authorities are examining imposing losses on Credit Suisse bondholders as part of a rescue, two sources with knowledge of the matter said on Sunday, while European regulators are apprehensive for fear it could hit investor confidence elsewhere.
Officials have been racing to rescue the 167-year-old bank, among the world’s largest wealth managers, after a brutal week that saw the second- and third-largest US bank failures in history. As one of 30 global banks seen as systemically important, any deal for Credit Suisse could ripple through global financial markets.
At least two major banks in Europe are examining scenarios of contagion possibly spreading in the region’s banking sector and looking to the Federal Reserve and the European Central Bank to step in with stronger signals of support, two senior executives with knowledge of the discussions told Reuters.
Bloomberg News, citing people with knowledge of the matter, said Credit Suisse was resisting the offer of up to US$1 billion, believing it to be too low and that it would hurt shareholders and employees who hold deferred stock.
If the takeover falls apart, Switzerland is considering taking over the bank in full or holding a significant equity stake, Bloomberg reported.
Credit Suisse and UBS declined to comment, and the Swiss government did not immediately respond to a request for comment.
The Financial Times reported that the all-share deal was set to be signed as early as Sunday. Citing people familiar with the matter, it said an offer made on Sunday was of 0.25 Swiss francs (US$0.27) per Credit Suisse share, well below Friday’s closing price of 1.86 Swiss francs and all but wiping out the bank’s existing shareholders.
UBS has also insisted on a “material adverse change” that voids the deal in the event its credit default spreads jump by 100 basis points or more, the report added. It said there was no guarantee that terms will remain the same or that a deal would be reached.
A person with knowledge of the talks earlier told Reuters that UBS sought US$6 billion from the Swiss government as part of a possible purchase of its rival. The guarantees would cover the cost of winding down parts of Credit Suisse and potential litigation charges.
One source previously said the talks were encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combined. The Swiss Bank Employees Association on Sunday called for the immediate creation of a task force to deal with the risk to jobs.
Swiss broadcaster SRF and other media reported that the government would hold an “important” press conference later on Sunday. They did not give any more details.
Credit Suisse shares lost a quarter of their value last week. The bank was forced to tap US$54 billion in central bank funding as it tries to recover from scandals that undermined the confidence of investors and clients.
A final decision on imposing losses on bondholders has not been taken, and the terms could still change, according to sources. Losses imposed on bondholders may need to be larger if Credit Suisse were wound down rather than if it were taken over by UBS, one of the sources said.
Despite that prospect, bond investors are hopeful a takeover by UBS would mean their Additional Tier 1 bonds are converted into UBS stock and more of their money protected, two bondholders told Reuters.
“If Credit Suisse fails, that would pose a significant systemic issue for bondholders as it would be hard for them to stomach the failure of a bank when it’s not sitting on unrealized investment losses like in the US,” said Jerome Legras, head of research at Axiom Alternative Investments, an investor in Credit Suisse’s AT1 debt.
French finance minister Bruno Le Maire on Sunday called for a “quick, massive and credible” solution for Credit Suisse.
The fraught weekend negotiations follow a brutal week for banking stocks and efforts in Europe and the United States to support the sector since the collapse of US lenders Silicon Valley Bank and Signature Bank.