A tight time for Credit Suisse’s negotiations as UBS seeks Swiss guarantees

  • Negotiations to save Credit Suisse continued until Sunday, when UBS asked the Swiss government for $6 billion to cover costs.
  • Swiss authorities are pushing UBS to take over its local rival to manage the crisis, two people with knowledge of the matter said.
  • Regulators want a resolution before markets reopen on Monday, but one source warned that talks face significant hurdles.

Red crossing signs outside Credit Suisse Group AG’s bank branch in Basel, Switzerland, Tuesday, Oct. 25, 2022.

Stefan Wermuth | Bloomberg | Getty Images

Talks to rescue Credit Suisse dragged on Sunday as UBS sought $6 billion from the Swiss government to cover costs if it bought its struggling rival, a person with knowledge of the talks said.

Officials are seeking to resolve a crisis of confidence in 167-year-old Credit Suisse, a mostly global bank that was caught in turmoil fueled by the collapse of US lenders Silicon Valley Bank and Signature Bank last week.

While regulators want a solution before markets reopen on Monday, one source warned that talks face significant hurdles and 10,000 jobs could be cut if the banks merge.

The guarantees sought by UBS would cover the costs of dismantling Credit Suisse’s parts and potential legal costs, two of the people told Reuters.

Credit Suisse, UBS and the Swiss government declined to comment.

The heated weekend negotiations follow a brutal week for banking stocks and efforts in Europe and the US to prop up the industry. US President Joe Biden’s administration moved to block consumer deposits, while the Swiss National Bank lent billions to Credit Suisse to shore up its shaky balance sheet.

Swiss authorities were pushing UBS to take over its local rival to manage the crisis, two people with knowledge of the matter said. According to the plan, Credit Suisse’s Swiss business will be broken up.

Switzerland is preparing to use emergency measures to speed up trade, the Financial Times said, citing two people familiar with the situation.

US authorities are involved in working with their Swiss counterparts to broker the deal, Bloomberg News reported, citing people familiar with the matter.

Berkshire Hathaway’s Warren Buffett has spoken with Biden administration officials about the banking crisis, a source told Reuters.

The White House and the US Treasury declined to comment.

British Chancellor of the Exchequer Jeremy Hunt and Bank of England Governor Andrew Bailey will also be in regular contact this weekend about the fate of Credit Suisse, a source familiar with the matter said. Representatives of the British Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.

Credit Suisse shares lost a quarter of their value last week. The bank was forced to tap into a $54 billion central bank bailout as it tries to recover from a series of scandals that have shaken investor and customer confidence.

It is among the world’s largest asset managers and is considered one of the 30 global systemically important banks – the failure of any of which would reverberate throughout the financial system.

There were several reports of interest in Credit Suisse from other competitors. Bloomberg reported that Deutsche Bank was considering buying some of its assets, while US financial giant BlackRock denied reports that it was involved in a competing bid for the bank.

The failure of California-based Silicon Valley Bank highlighted how a relentless rate hike campaign by the U.S. Federal Reserve and other central banks – including the European Central Bank on Thursday – was weighing on the banking sector.

The collapses of SVB and Signature are the largest bank failures in US history, behind the collapse of Washington Mutual during the global financial crisis in 2008.

First Citizens BancShares is evaluating SVB’s offer and at least one other suitor is seriously considering an offer, Bloomberg News reported Saturday.

Bank stocks have been on a global spree since the collapse of SVB, with the S&P Banks index falling 22 percent, the biggest two-week loss since the pandemic rocked markets in March 2020.

Major US banks threw a $30 billion lifeline to smaller lender First Republic. US banks have requested a record $153 billion in emergency liquidity from the US Federal Reserve in recent days.

The Mid-Size Bank Coalition of America asked regulators to extend federal insurance to all deposits for the next two years, Bloomberg News reported Saturday, citing a letter from the coalition.

In Washington, the focus has turned to better oversight to ensure that banks and their managers are held accountable.

Biden called on Congress to give regulators more power in the industry, including imposing higher fines, recovering assets and barring officials from failing banks.

Fast and dramatic events could mean big banks grow, smaller banks may have to keep up, and more regional lenders may close.

“People are actually moving their money, all these banks look fundamentally different three months, six months from now,” said Keith Noreika, vice chairman of Patomak Global Partners and a former U.S. Republican comptroller.

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