Swiss authorities propose UBS merger as solution to revive Credit Suisse confidence

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19th March 2023 – (Bern) The Swiss National Bank and Swiss regulator Finma have reportedly informed their international counterparts that a merger deal with UBS is viewed as the only viable option to restore confidence in Credit Suisse, which is currently facing a collapse in confidence. The Financial Times has reported that Credit Suisse, UBS, and key regulators are rushing to finalise the merger deal between the two Swiss banks.

Bloomberg has also reported that UBS has sought a backstop from the Swiss government to cover any future risks that may arise if it acquires Credit Suisse. The report suggests that UBS is in discussions with the Swiss government regarding potential scenarios wherein the government would assume certain legal costs or specific losses in any deal.

Sources have indicated that under one likely scenario, the merger would involve UBS acquiring Credit Suisse to gain its wealth and asset management units while potentially divesting the investment banking division. Credit Suisse began a critical weekend after several rivals grew cautious in their dealings with the bank, and regulators urged it to pursue a deal with its Swiss rival UBS.

Credit Suisse’s Chief Financial Officer Dixit Joshi and his teams were reportedly scheduled to hold meetings over the weekend to assess strategic scenarios for the bank. The 167-year-old bank is the most prominent name caught up in market turmoil caused by the recent collapse of US lenders Silicon Valley Bank and Signature Bank, leading to Credit Suisse tapping $54 billion in central bank funding.

Swiss regulators are reportedly encouraging UBS and Credit Suisse to merge, but neither bank wants to do so. According to a source, regulators do not have the power to force the merger. The boards of UBS and Credit Suisse were expected to meet separately over the weekend, as reported by the Financial Times.

Credit Suisse’s shares rose by 9% in after-market trading following the FT report, and both Credit Suisse and UBS declined to comment. At least four major banks, including Societe Generale SA and Deutsche Bank AG, have put restrictions on their trades involving Credit Suisse or its securities, according to five people with direct knowledge of the matter who spoke to Reuters.

Efforts to shore up Credit Suisse come as policymakers, including the European Central Bank and US President Joe Biden, seek to reassure investors and depositors that the global banking system is secure. However, fears of broader troubles in the sector persist. Moody’s downgraded its outlook on the US banking system to negative this week, citing “funding and liquidity strains on banks, driven by weakening depositor confidence.”

Banking stocks worldwide have been battered since Silicon Valley Bank’s collapse, which has raised concerns about other weaknesses in the financial system. US regional bank shares fell sharply on Friday, with the S&P Banks index dropping by 4.6%, resulting in its worst two-week calendar loss since the COVID-19 pandemic shook markets in March 2020. Moody’s downgraded First Republic Bank’s debt rating after the market closed on Friday, as the bank’s shares ended the day down by 32.8%, bringing its loss over the last ten sessions to more than 80%.