UBS requests US$6B guarantee from Swiss government for Credit Suisse acquisition, possible job cuts of over 10,000 if deal proceeds (Updated: 10.30am)


19th March 2023 – (Zurich) Swiss regulators are reportedly orchestrating talks for a possible takeover of Credit Suisse and UBS, Switzerland’s two largest banks, to calm the markets before they reopen on 20th March. Credit Suisse is uncertain about its future following a US$54 billion bailout from the Swiss central bank.

There are growing apprehensions regarding the possibility of further plummeting of Credit Suisse shares, following their 24% fall on Wednesday. This event triggered a sell-off trend in European markets, raising concerns about a potential financial crisis on a broader scale.

Switzerland is reportedly making preparations to utilise emergency measures in order to expedite the takeover of Credit Suisse by UBS. Sources familiar with the situation indicate that the banks and regulators are hurrying to finalise a merger agreement before markets open on Monday, and that UBS may use emergency measures to skip the typical six-week shareholder consultation period required under Swiss law. The finer details of these measures are still being worked out. Requests for comment from Finma, Switzerland’s regulator, have gone unanswered at this time. The Swiss central bank, Credit Suisse, and UBS have all declined to comment on the situation.

According to sources, the Swiss National Bank and Finma have communicated to international counterparts that a merger with UBS is seen as the sole means of preventing further damage to Credit Suisse’s already fragile reputation. Regulatory approval is expected to be reached by Saturday night.

The possible takeover is of particular interest following the collapse of two U.S. banks, which triggered fears of contagion. During the week, UBS made a net profit of US$7.6 billion, while Credit Suisse suffered a loss of US$7.9 billion. If the takeover proceeds, UBS is asking the Swiss government to cover US$6 billion in costs to buy Credit Suisse. However, the talks are encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combine. Swiss regulators are racing to present a solution for Credit Suisse before markets reopen on 20th March, but the complexities of combining two behemoths raise the prospect that talks will last well into Sunday.

Both banks primarily rely on wealth management and investment banking for revenue. UBS leads the world in wealth management and generated almost 15% of its US$34.5 billion in turnover in 2022 through this arm, while Credit Suisse’s wealth management accounted for 22% of its 22.4 billion Swiss francs in turnover.

Investment banking represents 25.2% of UBS’s turnover, compared to nearly 20.6% at Credit Suisse. However, Credit Suisse started a major restructuring project in October to separate its investment banking from the rest of its activities following a series of scandals. This move is considered too complex by many investors, and UBS may choose to avoid taking over Credit Suisse’s problematic investment banking.

Both banks are active in asset management and retail banking, with UBS relying on a network of almost 200 branches in Switzerland, compared to Credit Suisse’s 95. Credit Suisse’s domestic branch, considered one of its jewels, is particularly active in mortgages and loans to small- and medium-sized businesses. In the event of a merger, analysts at US financial services giant JPMorgan believe this arm of Credit Suisse will likely have to be spun off or listed separately on the stock exchange.

UBS and Credit Suisse are the pillars of Swiss banking, with UBS formed in 1998 from the merger of Swiss Bank Corporation and the Union Bank of Switzerland. Credit Suisse was founded in 1856 by Alfred Escher, who aimed to finance the Swiss railway boom. The two banks are now global groups, with UBS employing 72,597 people and Credit Suisse employing 50,480.

Careers often cross between the two banks due to their close proximity, with Axel Lehmann, Credit Suisse’s chairman, spending over 11 years at UBS before joining Credit Suisse in 2021 to turn it around. Similarly, Credit Suisse’s chief executive, Ulrich Korner, left the bank to join UBS before returning to save the asset management branch and then the entire bank by taking on the CEO role.