Switzerland prepares emergency measures for UBS takeover of Credit Suisse

Switzerland is preparing to use emergency measures to fast-track the acquisition by UBS of Credit Suisse, according to three people familiar with the situation, as banks and their regulators scramble to seal a merger deal before markets open on Monday. running for.

Under Swiss rules, UBS would normally have to give shareholders six weeks to consult on the acquisition, which would combine two of Switzerland’s biggest lenders.

Three people briefed on the situation indicated UBS would use emergency measures to skip the consultation period and pass the deal without a shareholder vote. The details are still being worked out, said one of the people.

Switzerland’s regulator FINMA did not immediately respond to requests for comment. The Swiss Central Bank, Credit Suisse and UBS declined to comment.

The Swiss National Bank and regulator FINMA have told international counterparts they see a deal with UBS as the only option to prevent a collapse in confidence in Credit Suisse and are working to reach a regulatory agreement by Saturday night.

UBS has said it will continue with Credit Suisse’s plans to shrink its investment bank so that the combined entity makes up no more than a third of the merged group, two of the people said.

The Swiss cabinet held an emergency meeting on Saturday evening to discuss the future of Credit Suisse. The cabinet gathered at the Ministry of Finance in Bern for a series of presentations from government officials, the Swiss National Bank, market regulator FINMA and representatives of the banking sector.

The boards of both the banks are meeting later this week. Credit Suisse’s key regulators in the US, UK and Switzerland are considering the legal structure of a deal and a number of concessions sought by UBS.

UBS wants to allow the world’s biggest banks to phase out any demands that fall under global rules on capital. Additionally, UBS has requested some sort of compensation or government settlement to cover future legal costs, one of the people said.

Credit Suisse has set aside SFr1.2bn in legal provisions for 2022 and warned that as-yet-unresolved lawsuits and regulatory investigations could add another SFr1.2bn.

UBS’s leadership team worries about competing with Credit Suisse’s investment bank, which has been the source of many of its scandals and losses in recent years, according to people familiar with their thinking. They want to reopen the case for spinning off the bulk of the business into a new CS First Boston division.

The race for a deal began days after the Swiss central bank was forced to provide an emergency SFr50bn ($54bn) credit line to Credit Suisse.

It failed to stem the slide in its share price, which has plunged to a record low after its biggest investor refused to provide more capital and its chairman admitted the exodus of wealth management clients was continuing. .

Deposit withdrawals from Credit Suisse topped SFr10bn ($10.8bn) in a single day late last week, according to two people familiar with the situation, as fears grew for its health.

Shares of other European banks were also hit hard by the crisis of confidence triggered by the collapse of the Silicon Valley bank late last week.

The potential acquisition marks a sharp divergence in the fortunes of the two banks. Over the past three years, shares of UBS have gained nearly 120 percent while those of its smaller rival have declined nearly 70 percent.

The former has a market capitalization of $56.6bn, while Credit Suisse closed trading on Friday with a valuation of $8bn. In 2022, UBS projects a profit of $7.6bn, while Credit Suisse makes a loss of $7.9bn, effectively wiping out the entire previous decade’s earnings.

Swiss regulators told their US and UK counterparts on Friday evening that a merger of the two banks was “Plan A” to prevent a collapse in investor confidence in Credit Suisse, one of the people said. There is no guarantee that the deal will go through.

Negotiators have named Credit Suisse as Cedar and UBS as Ulmus, according to people with knowledge of the matter.

The fact that the SNB and FINMA favor a Swiss solution has scared off other potential bidders. US investment giant BlackRock had drawn up a rival approach, evaluating several options and talking to other potential investors, according to people with knowledge of the matter.

A completed merger between UBS and Credit Suisse would create one of the largest global systemically important financial institutions in Europe. UBS has total assets on its balance sheet of $1.1 trillion and Credit Suisse has $575 billion. However, such a huge deal may prove very reluctant to execute.

The Financial Times previously reported that other options under consideration included breaking up Credit Suisse and raising money through a public offering of its ringfenced Swiss division, with the property and asset management units being sold to UBS or other bidders.

UBS is on high alert for an emergency rescue call from the Swiss government after investors turned wary of Credit Suisse’s most recent restructuring. Last year, Chief Executive Ulrich Korner announced plans to cut 9,000 jobs and spin off most of his investment bank into a new entity called First Boston, which was run by former board member Michael Klein.

With additional reporting by Sam Jones in Zurich

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