After Credit Suisse Group AG announced that it would borrow 50 billion Swiss francs from the Swiss National Bank, UBS Group AG is reportedly considering acquiring the banking giant. However, UBS is requesting that the government issue a backstop to guard against any loss if it buys Credit Suisse. According to unnamed sources familiar with the matter, UBS, which is the world’s largest private bank, wants the government to protect the deal.
Credit Suisse’s woes deepen as UBS considers acquisition amid banking industry challenges
There is a lot of business going on behind the scenes in the modern banking world. Friday was reported that UBS Group AG is in talks to acquire all or part of the banking giant Credit Suisse Group AG. Sources familiar with the talks say the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank are involved in the discussions between UBS and Credit Suisse. Swiss regulators say the merger, dubbed “Plan A,” is an attempt to bolster investor and depositor confidence in Credit Suisse. On Thursday, Credit Suisse announced it would borrow 50 billion Swiss francs ($54 billion) from the Swiss National Bank to bolster liquidity.
On Saturday, Bloomberg and several other publications reported that merger talks have intensified and UBS wants protection against the potential losses it could face if it acquires Credit Suisse. Bloomberg contributors Jan-Henrik Foerster, Dinesh Nair, Marion Halftermeyer and Esteban Duarte detailed that UBS is discussing specific scenarios with the Swiss government. According to sources familiar with the matter who requested anonymity, UBS is interested in Credit Suisse’s asset and wealth management units, but the bank wants a government-brokered deal that includes backing.
The report further indicated that prior to the Swiss government-brokered discussions, UBS executives were hesitant to acquire the competing bank and take on the risks associated with Credit Suisse. Sources familiar with the matter said Reuters that Credit Suisse chief financial officer Dixit Joshi and his team met over the weekend to discuss the bank’s options. In addition to UBS, the report notes that there were multiple reports of interest from rivals. This is not the first sign of trouble for the Swiss bank, as Credit Suisse and Deutsche Bank suffered from troubled valuations in October last year. At the time, the banking giant’s credit default insurance was close to 2008 levels.
Credit Suisse’s current problems intensified after the failures of Silvergate Bank, Silicon Valley Bank and Signature Bank. Additionally, 11 lenders pumped $30 billion into First Republic Bank last week to prevent the bank from collapsing. In the past seven days, Credit Suisse share they have lost about a quarter of their value. So far this year, Credit Suisse shares are down 35.58%.
Should the Swiss government provide a backstop to protect UBS’s takeover of Credit Suisse? In the comment section below, let us know what you think about this topic.
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