Credit Suisse talks extend to Sunday as markets await deal

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Talks aimed at containing the crisis of confidence in Credit Suisse Group AG dragged on until Sunday, with Swiss officials and UBS Group AG rushing to strike a deal to take over or break up the battered lender before markets open in Asia. .

The parties are seeking to resolve thorny issues such as government support and the fate of investment bank Credit Suisse, after UBS shelved its initial opposition to a deal with the smaller rival, officials said. people informed of the discussions. UBS is asking the Swiss government to bear some legal costs and potential future losses in any takeover, the people said, with a report putting the figure at around $6 billion.

The complex discussions over what would be the first combination of two global systemically important banks since the financial crisis have seen Swiss and US authorities intervene, some people said. Talks accelerated on Saturday, with all parties pushing for a solution that can be executed quickly after a week in which clients withdrew money and counterparties withdrew from some transactions with Credit Suisse. The goal is to have an announcement by Sunday evening at the latest, residents said.

In one likely scenario, the deal would involve UBS acquiring Credit Suisse to get its wealth and asset management units, while possibly divesting the investment banking division, the sources said. Discussions are ongoing over the fate of the profitable Swiss universal bank Credit Suisse, which is likely attractive to UBS but could leave the country’s domestic banking sector too concentrated, the sources said, asking not to be identified describing discussions private.

Representatives from UBS, Credit Suisse and the Swiss Ministry of Finance declined to comment.

A government-brokered deal would address a Credit Suisse rout that sent shockwaves through the global financial system over the past week when panicked investors dumped its stocks and bonds following the collapse of several small American lenders. A backstop from the Swiss central bank briefly halted the declines, but the market drama carries the risk that customers or counterparties will continue to flee, with potential ramifications for the wider industry.

Other financial firms, including Deutsche Bank AG, are monitoring the situation in case attractive Credit Suisse assets are tied up, either as part of a UBS acquisition or some other form of breakup, people say. informed of these discussions.

The talks raise questions about the future of Credit Suisse’s bold plan to spin off its investment banking unit under the well-known First Boston brand. The company had worked to legally and operationally separate the business that would become CS First Boston, but those efforts are still in their infancy. Chief Executive Ulrich Koerner said the company is looking at a potential IPO for the business in 2025.

Credit Suisse has also reduced its trading activities, but this still accounts for a large part of the bank’s capital needs.

“Investment banking is the part most people want to start,” said James Athey, chief investment officer at Abrn. “That’s probably where a lot of these exhibits are. So that’s the challenge.

UBS executives had opposed an arranged combination with its rival because they wanted to focus on their own strategy centered on wealth management and were reluctant to take risks related to Credit Suisse, Bloomberg reported earlier. . Credit Suisse has been unprofitable for the past decade and racked up billions in legal losses.

Credit Suisse had 1.2 billion Swiss francs ($1.3 billion) in legal reserves at the end of 2022 and revealed it saw reasonably possible losses adding another 1.2 billion francs to that total , with several ongoing lawsuits and regulatory investigations, according to Bloomberg Intelligence.

Credit Suisse’s market value has plunged to about 7.4 billion Swiss francs, from a peak of more than 100 billion francs in 2007. UBS’s market value is 60 billion francs. Clients withdrew more than $100 billion in assets in the final three months of last year amid growing concerns over its financial health, and capital outflows continued even after appealing to shareholders for a capital increase of 4 billion francs.

Read more: Disclosure of Credit Suisse Weaknesses Adds to Risks: Legal Insights

A merger between the two Swiss banking giants, whose headquarters face each other in Zurich’s central Paradeplatz square, would be a historic event for the nation and global finance.

The two banks, both considered by the Financial Stability Board to be globally systemically relevant, are linked by frequent exchanges of leaders from one side of Paradeplatz to the other. Chairman Axel Lehmann and CEO Koerner are former UBS decision makers.

–With help from Bastian Benrath, Sagarika Jaisinghani and Dinesh Nair.

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