Contagion From U.S. Bank Failures Spreads

Credit Suisse in Crisis

Date: 18 March 2023 - 22:00

News ID: ۱۱۳۵۴۱

FRANKFURT (Reuters) -- UBS is examining a takeover of Credit Suisse that could see the Swiss government offer a guarantee against the risks involved, said two people with knowledge of the matter on Saturday.
The people said that UBS was coming under pressure from the Swiss authorities to carry out a takeover. Under the plan, Credit Suisse’s Swiss business could be spun off, they added.
UBS, Credit Suisse, and Switzerland’s financial regulator FINMA declined to comment when approached by Reuters.
Regulators have urged Credit Suisse Group to pursue a deal with Swiss rival UBS as the troubled bank began a make-or-break weekend after some rivals grew cautious in their dealings with it.
Credit Suisse Chief Financial Officer Dixit Joshi and his teams will hold meetings over the weekend to assess the bank’s options, people with knowledge of the matter said on Friday.
The 167-year-old bank is the biggest name ensnared in the market turmoil unleashed by the collapse of U.S. lenders Silicon Valley Bank and Signature Bank over the past week, forcing the Swiss bank to tap $54 billion in central bank funding.
Dating back to the mid-nineteenth century, UBS is Switzerland’s biggest bank with a market value of 60 billion Swiss francs ($65 billion) and the world’s largest wealth manager.
UBS itself has had its own tumultuous periods, with a clampdown on banking secrecy and a bailout during the global financial crisis more than a decade ago.
It went through several restructurings, cutting thousands of jobs, and pared back the investment
bank to reduce risk and improve returns.
Earlier this week, UBS Chief Executive Ralph Hamers said he was focused on organic growth rather than M&A.
Last year, he backtracked on a deal to buy Wealthfront, a $1.4 billion transaction that would have fast-tracked UBS’s growth in the U.S. market. Also last year, Hamers said he expected to see more local mergers and acquisitions than cross-border consolidation in the European banking industry.
The bank this year has said the outlook is uncertain as the war in Ukraine and the surge in interest rates drags down client confidence.
The turmoil at Credit Suisse has put another dent in the Swiss reputation for financial stability on which UBS depends.
Any tie-up would be one of the biggest since the global financial crisis.
A string of scandals over many years, top management changes, multi-billion dollar losses and an uninspiring strategy can be blamed for the mess that the 167-year-old Swiss lender now finds itself in.
The sell-off in Credit Suisse’s shares began in 2021, triggered by losses associated with the collapse of investment fund Archegos and Greensill Capital.
In January 2022, Antonio Horta-Osorio resigned as chairman for breaching COVID-19 rules, just eight months after he was hired to fix the ailing bank.
In July, new CEO and restructuring expert Ulrich Koerner unveiled a strategic review - but failed to win over investors.
A rumor on an impending failure of the bank in the autumn sent customers fleeing.
Credit Suisse confirmed last month that clients had pulled 110 billion Swiss francs of funds in the fourth quarter while the bank suffered its biggest annual loss of 7.29 billion Swiss francs since the financial crisis. In December, Credit Suisse had tapped investors for 4 billion Swiss francs.
On Wednesday, Saudi National Bank, the bank’s top backer, told reporters it could not give more money to the bank as it was constrained by regulatory hurdles, while saying it was happy with the bank’s turnaround plan.
Credit Suisse has said it would borrow up to $54 billion to shore up liquidity and investor confidence but some analysts believe that is unlikely to be enough to soothe investors.
In the early days of the global financial crisis in 2008, UBS took on Singapore sovereign wealth fund GIC as an investor but the stake sell-down ultimately resulted in a loss for GIC.
Divesting stakes in various assets is an option as Credit Suisse owns an asset management business and a stake in SIX Group, which runs the Zurich stock exchange.
Credit Suisse has pivoted to a strategy to cater to rich clients while cutting back on its volatile investment banking business and has already announced plans to spin it off.
The bank ranks among the world’s largest wealth managers and crucially it is one of 30 global systemically important banks, whose failure would cause ripples through the entire financial system.
Credit Suisse has a local Swiss bank, wealth management, investment banking and asset management operations. It has just over 50,000 employees and 1.6 trillion Swiss francs in assets under management at the end of 2021.
With more than 150 offices in around 50 countries, Credit Suisse is the private bank for a large number of entrepreneurs, rich and ultra rich individuals and companies.