UBS Group AG is asking the Swiss government for a backstop to cover future risks if it were to buy Credit Suisse Group AG, according to people with knowledge of the matter.
(Bloomberg) —
UBS Group AG is asking the Swiss government for a backstop to cover future risks if it were to buy Credit Suisse Group AG, according to people with knowledge of the matter.
UBS is discussing scenarios in which the government would take on certain legal costs and potential losses in any deal, said the people, asking not to be identified describing private discussions. The largest Swiss bank is exploring an acquisition of all or parts of its smaller rival at the urging of regulators to halt a crisis of confidence, Bloomberg reported earlier.
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, the people said.
The time scale for agreement is fluid. 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 Financial Times reported that a deal could emerge as soon as Saturday evening.
Representatives at UBS and Credit Suisse declined to comment. A spokeswoman for the Swiss finance ministry declined to comment, adding the government “doesn’t comment on rumors.”
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.
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 ($1.3 billion) 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 $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.
Read More: Credit Suisse Weakness Disclosure Adds to Risks: Legal Outlook
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 Chairman Axel Lehmann and Chief Executive Officer Ulrich Koerner are former decision-makers at UBS.
–With assistance from Bastian Benrath.
(Updates with details on timing)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.