Deal could mean $8bn in cost cuts, big losses for bondholders, and 10,000 jobs at risk
According to multiple reports, Switzerland is set to employ emergency measures to accelerate the acquisition of Credit Suisse by UBS. The banks and regulators are in a hurry to finalize the merger before European markets open on Monday.
Under Swiss regulations, UBS would normally have to grant a six-week period to shareholders to review the acquisition, which would merge the two largest banks in Switzerland. However, Financial Times reporting revealed that UBS has indicated that it plans to utilise emergency measures to bypass the consultation period and execute the deal without a shareholder vote.
Switzerland's regulators, Finma, and the Swiss National Bank informed their international counterparts that a deal with UBS was the only alternative to prevent a collapse of confidence in Credit Suisse. They were working to achieve regulatory consensus over the weekend.
UBS has confirmed that it will proceed with Credit Suisse's plan to reduce its investment bank's size, ensuring that the merged group does not exceed one-third of the total entity.
“Let me be very specific on this – UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” UBS chairman Colm Kelleher said.
The all-share deal that has been approved means that UBS will pay US$4.5 billion ($A6.7bn) for its rival – less than half of what Credit Suisse’s shares were worth at the close of business on Friday.
To deliberate the future of Credit Suisse, the Swiss cabinet convened for an emergency meeting on Saturday evening. Government officials, the Swiss National Bank, market regulator Finma, and banking sector representatives gave presentations at the finance ministry in Bern.
The boards of both banks met over the weekend, and Credit Suisse's regulators in the US, the UK, and Switzerland are analysing the deal's legal structure and several concessions that UBS is seeking.
The Swiss government has offered to cover nearly CHF9bn (Swiss francs) ($A14.5bn) for potential losses.
According to Globe and Mail reporting, the CHF5.5bn in government guarantees that UBS seeks would cover the costs of shutting down parts of Credit Suisse and potential legal fees. However, one of their sources cautioned that the talks to address the crisis of confidence in Credit Suisse is facing significant obstacles, and if the two banks merge, around 10,000 jobs may have to be terminated.
UBS has requested permission to gradually comply with global capital rules for the world's largest banks.
The 167-year-old Credit Suisse is the most prominent name caught in the turmoil caused by the collapse of Silicon Valley Bank and Signature Bank in the United States in the previous week, resulting in a downturn in banking stocks and leading authorities to hasten exceptional measures to support banks.
In 2022, Credit Suisse allocated CHF1.2bn in legal provisions and cautioned that unsettled lawsuits and regulatory investigations could add another CHF1.2bn.
According to insiders familiar with UBS's leadership team, they are apprehensive about assuming ownership for Credit Suisse's investment bank, which has been responsible for several of its scandals and financial losses in recent times. They would like to reconsider the possibility of spinning off a significant part of the business into a new division called CS First Boston.
The pursuit of a deal follows a few days after the Swiss central bank was compelled to extend an emergency credit line of CHF50bn to Credit Suisse. However, the aid was insufficient to halt the decline in the bank's share price, which has plummeted to a historic low after its biggest investor refused to provide additional capital, and its chairperson acknowledged the ongoing departure of wealth management clients.
Two people familiar with the matter stated that last week, deposit outflows from Credit Suisse surged to CHF10bn per day due to growing concerns about its stability.