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Monday, March 27, 2023

Credit-Suisse and UBS: Elephant wedding to protect financial system

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According to an insider, a series of meetings have been scheduled for the weekend to agree on a plan.
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Regulators in the small Alpine state are urging UBS to gobble up its smaller local rival, two people familiar with the situation told Reuters. The prerequisite for a deal, which was frantically negotiated on Saturday, is state security.Zürich. Accordingly, the government in Bern should issue a guarantee to cover the risks associated with the takeover. A purchase of Credit Suisse by UBS would be the most important bank merger in Europe since the financial crisis.

Credit Suisse’s Swiss business could be spun off as part of the project, it said. A series of meetings have been set up over the weekend to agree on a plan, according to a third insider. The Swiss National Bank and the Swiss financial regulator Finma have told their international colleagues that they see a merger with UBS as the only way to stop the loss of confidence in Credit Suisse, the Financial Times reported. The parties are working flat out to perhaps reach an agreement as early as Saturday night, the newspaper said. UBS, CS and Finma declined to comment.

Is there a competitive offer?

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Credit Suisse is the world’s largest money house, which got caught up in the whirlwind of the defunct US institutes Silicon Valley Bank (SVB) and Signature Bank, although it has hardly anything in the fire at SVB itself. In the middle of the week, she had to draw on emergency loans from the SNB with a volume of up to CHF 50 billion. It is the first time since the financial crisis of 2007 that a central bank has felt compelled to provide support for such a large bank.

This intervention temporarily calmed the situation, but was apparently not enough to break the downward spiral. Not only is the flight of private customers affecting Zürcher Bank, business with other financial institutions is also becoming increasingly difficult. At least four major houses, including Deutsche Bank, have restricted their dealings with Credit Suisse or its securities.

According to media reports, other financial institutions have also expressed an interest in Credit Suisse or parts of it. Bloomberg reported that Deutsche Bank is exploring buying areas. BlackRock denied a report that the US fund giant was working on a competitive bid for Credit Suisse.

Credit Suisse Does not match UPS

However, the insiders considered a takeover by UBS to be the most likely. A merger would create a European giant. UBS currently employs over 72,000 people and Credit Suisse over 50,000. Given the overlaps, a merger would probably lead to the loss of thousands of jobs. Because of the high market shares in the home market, the question also arises as to whether the competition authorities would wave a merger through. A spin-off of Credit Suisse’s Swiss business could allay such concerns. The institute made the preparations for this years ago in connection with stock exchange plans that were later rejected.

UBS has also repeatedly made it clear publicly that it wants nothing to do with a takeover of Credit Suisse, most recently on Tuesday. UBS is doing well on its own: in 2022, the world’s largest wealth manager for the rich and super-rich made a profit of $ 7.63 billion, the best result in 16 years. Credit Suisse, on the other hand, suffered a loss of CHF 7.3 billion.

UBS wants to grow primarily in the business with wealthy US private clients. Credit Suisse, on the other hand, has largely withdrawn from this business. However, the asset management business of CS, especially in Asia, could be attractive for UBS. In addition, she could probably buy the rival at a bargain price. Credit Suisse is only worth 7.4 billion Swiss francs on the stock exchange, UBS around 60 billion. However, the takeover of a major bank is considered to be highly complex, lengthy and risky.

government is silent

Should UBS decline, direct state aid such as buying a stake would be another option. But Switzerland would have to swallow a fat toad with that. Because after the state rescue of UBS in 2008, the authorities made great efforts to prevent a similar event in the future. For example, the capital regulations were tightened and preparatory measures were taken for the resolution of banks.

So far, the government in Bern has remained silent about the situation at CS. But she is under enormous international pressure to stabilize Credit Suisse. Because there is a lot at stake. Credit Suisse is one of the largest wealth managers in the world and is one of 30 global systemically important banks whose failure would affect the entire financial system. The fundamentals of the banking sector are stronger and the chain of institutions weaker than during the 2008 financial crisis, Goldman analyst Lotfi Karoui wrote. That limits the risk. A more energetic reaction from regulators and governments is probably necessary to stabilize the situation. The uncertainty about the future of Credit Suisse is putting the entire European banking sector under pressure.

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