© Reuters. FILE PHOTO: A logo is seen at the headquarters of Swiss bank Credit Suisse at Paradeplatz in Zurich, Switzerland, March 16, 2023. REUTERS/Denis Balibouse
By John O’Donnell
(Reuters) – UBS AG was considering an acquisition of its embattled Swiss peer Credit Suisse on Saturday, sources said, potentially allaying fears that an ongoing crisis at the bank could destabilize the global financial system.
Credit Suisse, 167, is the biggest name caught up in the turmoil sparked by the collapse of US lenders Silicon Valley Bank and signature bank (NASDAQ:) over the past week, causing a widespread loss of investor confidence globally.
Both US and European banking executives and regulators have taken extraordinary measures to prop up the industry and try to restore confidence. The Biden Administration moved to support consumer deposits, while the Swiss central bank lent Credit Suisse billions to stabilize its shaky balance sheet.
UBS was under pressure from Swiss authorities to carry out an acquisition of its local rival to control the crisis, two people with knowledge of the matter said. The plan could see the Swiss government offer a guarantee against the risks involved, while Credit Suisse’s Swiss business could be spun off.
UBS, Credit Suisse and Switzerland’s financial regulator FINMA declined to comment.
The Financial Times said the three were rushing to finalize a merger deal as early as Saturday night, citing people familiar with the matter.
US authorities are involved, working with their Swiss counterparts to help broker a deal, Bloomberg News reported, also citing people familiar with the matter.
Credit Suisse shares have lost a quarter of their value in the past week. He has been forced to use $54 billion in central bank funds as he tries to recover from a series of scandals that have undermined investor and customer confidence. This made it the first major global bank to take an emergency lifeline since the 2008 financial crisis.
The company is among the world’s largest wealth managers and is considered one of 30 global systemically important banks whose failure would affect the entire financial system.
Banking sector fundamentals are stronger and global systemic linkages are weaker than during the 2008 global financial crisis, Goldman analyst Lotfi Karoui wrote in a note to clients late Friday. That limits the risk of a “potential vicious cycle of counterparty credit losses,” Karoui said.
“However, a stronger policy response is likely to be needed to achieve some stability,” Karoui said. The bank said the lack of clarity about the future of Credit Suisse will put pressure on the European banking sector in general.
A senior official at China’s central bank said on Saturday that high interest rates in major developed economies could continue to cause problems for the financial system.
There were multiple reports of interest to Credit Suisse from other rivals. Bloomberg reported that german bank (ETR:) was considering buying some of its assets, while US financial giant BlackRock (NYSE:) denied a report that it was participating in a rival bid for the bank.
INTEREST RATE RISK
The failure of California-based Silicon Valley Bank highlighted how a relentless campaign of interest rate hikes by the US Federal Reserve and other central banks, including the European Central Bank this week, was putting pressure on the banking sector. The SVB and Signature collapses are the second and third largest bank failures in US history after the demise of Washington Mutual during the global financial crisis in 2008.
Bank stocks globally have been hit since the SVB collapse, with the S&P Banks Index tumbling 22%, its biggest two weeks of losses since the pandemic rocked markets in March 2020.
Big US banks have thrown a $30 billion lifeline to smaller lender First Republic, and US banks collectively have sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days. .
This reflects “financing and liquidity stress in banks, driven by weakening depositor confidence,” ratings agency Moody’s (NYSE:) said, which this week downgraded its outlook on the US banking system to negative.
While support from some of America’s banking titans prevented the First Republic from collapsing, investors were shocked by revelations about its cash position and how much emergency liquidity it needed.
In Washington, the focus has been on increased oversight to ensure that banks and their executives are held accountable.
US President Joe Biden has called on Congress to give regulators greater power over the sector, including imposing higher fines, repossessing funds and banning officials from failing banks.
