Read news from:
Austria
SHARE
COPY LINK

ECONOMY

UBS against the clock in Credit Suisse takeover talks

UBS was up against the clock Sunday in talks to finalise a mammoth takeover of its troubled rival Swiss bank Credit Suisse and reassure investors before the markets reopen.

Published: 19 March 2023 14:02 CET
UBS against the clock in Credit Suisse takeover talks
Photo: Fabrice COFFRINI/AFP

Switzerland’s biggest bank UBS is being urged by the authorities to get a deal over the line in a bid to avoid a wave of contagious panic on the markets Monday, according to several media reports.

The wealthy Alpine nation’s largest banks have been in urgent negotiations throughout the weekend, with the government, central bank and financial regulators all involved.

The 20 Minuten newspaper filmed members of the Swiss government, including President Alain Berset, heading into the finance ministry in Bern early Sunday, with the Swiss news agency ATS reporting that the building’s window shutters had been lowered.

Blick newspaper said UBS will buy Credit Suisse in a deal to be sealed later Sunday in Bern at a meeting featuring the government and the banks’ executives.

A merger of this scale — involving swallowing up all or part of a bank arousing growing investor unease — would normally take months. UBS will have had a few days.

However, the Swiss authorities felt they had no choice but to push UBS into overcoming its reluctance, due to the enormous pressure exerted by Switzerland’s major economic and financial partners, fearing for their own financial centres, said Blick.

“When the stock market opens on Monday, Credit Suisse could be a thing of the past,” the tabloid said.

While under Swiss rules, UBS would typically have to consult shareholders over six weeks, it could use emergency measures to skip the consultation period and a shareholder vote, the Financial Times newspaper said, citing unnamed sources.

UBS would require public guarantees to cover legal costs and potential losses, according to a report by Bloomberg, citing anonymous sources.

‘Merger of the century’

Credit Suisse, the country’s SNB central bank and the Swiss financial watchdog FINMA all declined to comment on the negotiations when contacted by AFP.

The government did not immediately respond when contacted by AFP Sunday. The SonntagsZeitung newspaper called it “the merger of the century”.

“The unthinkable becomes true: Credit Suisse is about to be taken over by UBS,” the weekly said.

The government, FINMA and the SNB “see no other option”, it claimed. “The pressure from abroad had become too great — and the fear that the reeling Credit Suisse could trigger a global financial crisis,” it said.

Too big to fail?

Like UBS, Credit Suisse is one of 30 banks around the world deemed to be Global Systemically Important Banks — of such importance to the international banking system that they are deemed too big to fail.

But the market movement seemed to suggest the bank was being perceived as a weak link in the chain.

“We are now awaiting a definitive and structural solution to the problems of this bank,” French Finance Minister Bruno Le Maire told Le Parisien newspaper. “We remain extremely vigilant.”

According to the FT, Credit Suisse customers withdrew 10 billion Swiss francs ($10.8 billion) in deposits in a single day late last week — a measure of how far trust in the bank has fallen.

After a turbulent week on the stock market, which forced the SNB to step in with a $54-billion lifeline, Credit Suisse was worth just over $8.7 billion by Friday evening — precious little for a bank considered one of 30 key institutions worldwide.

FINMA and the SNB said Credit Suisse “meets the capital and liquidity requirements” imposed on such banks, but mistrust remains.

Stock market plunge

Amid fears of contagion after the collapse of two US banks, Credit Suisse’s share price plunged by more than 30 percent on Wednesday to a new record low of 1.55 Swiss francs.

After recovering some ground on Thursday, its shares closed down eight percent on Friday, at 1.86 Swiss francs as the Zurich-based lender struggled to retain investor confidence.

Credit Suisse has been plagued by a series of scandals in recent years. Shares were worth 12.78 Swiss francs in February 2021.

In 2022, the bank suffered a net loss of $7.9 billion and expects a “substantial” pre-tax loss this year.

The notion of Switzerland’s biggest banks joining forces has cropped up over the years but has generally been dismissed due to competition issues and risks to the Swiss financial system’s stability.

“The Credit Suisse management, even if forced to do so by the authorities, would only choose (this option) if they have no other solution,” said David Benamou, chief investment officer of Paris-based Axiom Alternative Investments.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.

ECONOMY

Swiss sweat over size of new superbank

The arranged marriage of UBS and Credit Suisse will create the biggest bank Switzerland has ever seen, with some wondering if the superbank might be too big for its own good.

Published: 22 March 2023 17:15 CET
Swiss sweat over size of new superbank

The deal struck late Sunday prevented the collapse of the country’s second-biggest lender by folding it into the largest.

Even before last week’s dramatic events, both firms were already among the 30 around the world deemed of strategic importance to the global banking system and therefore too big to fail.

Some in business, industry and politics are not convinced that one even bigger bank will turn out for the better.

“Credit Suisse was really the bank of the economy and industry,” said Philippe Cordonier of Swissmem, the national association representing the engineering industry.

For exporting companies, Credit Suisse offered a range of services essential for international transactions, “payments abroad, credits, leasing or currency hedging”, he told AFP.

READ ALSO: How Switzerland reacted to shock UBS buyout of Credit Suisse

Less competition

“This is where the question arises of what skills will be kept,” said Cordonier, as the profiles of the two banks, although close, are not identical.

So far, many questions remain unanswered.

Such a takeover would normally need months of negotiations, but UBS only had a couple of days, under some serious arm-twisting by Swiss authorities.

UBS chief executive Ralph Hamers admitted at an analysts’ conference that he did not yet have all the details of the takeover.

Switzerland is a confederation of 26 cantons and Cordonier said the alternative could be to turn from the national banks to the cantonal banks.

READ ALSO: What are Swiss cantonal banks and does it make sense to move money there?

However, many do not currently have the skills to help companies export to far-off markets such as Asia, and would have to develop them.

The other option is to turn to foreign banks, although they would not possess “in-depth knowledge” of the Swiss market, Cordonier said.

“If there is only one major bank that has the capacity to work abroad, this will restrict the choice of solutions for companies,” said the engineer, who is also concerned about the repercussions on costs “if there is less competition”.

Photo: Fabrice COFFRINI/AFP

SMEs worried

Founded in 1856 by Alfred Escher, the godfather of Swiss railways, Credit Suisse was closely linked to the country’s economic development.

The bank financed the expansion of the rail network, the construction of the Gotthard Tunnel beneath the Alps, and the start-up of Swiss companies that
went on to become leaders in their sector.

“Twenty-five years ago, there were four big Swiss banks,” recalled the Swiss Federation of Companies, which represents small and medium enterprises.

The banking sector has already seen major convergence in 1998 when the Swiss Bank Corporation merged with the Union Bank of Switzerland to form the modern UBS.

“The concentration into a smaller number of banks reduces competition and makes it more difficult to obtain good financing conditions for SMEs,” the federation said in a statement.

The orchestrated takeover has also triggered virulent criticism among Swiss political circles, of all stripes.

READ MORE: How safe is your money in a Swiss bank? 

Politicians have called for the further tightening of regulations – which are already strict in Switzerland – in the face of this new giant, which will dominate the nation’s banking sector.

Swift solution

A partial nationalisation could “at least” have been considered, said Tobias Straumann, professor of economic history at the University of Zurich, told the Berner Zeitung newspaper.

Carlo Lombardini, a lawyer and professor of banking law at the University of Lausanne, said the UBS takeover “was surely the only swift and feasible solution”.

However, he would have preferred another outcome, such as a takeover “by a foreign bank”, he told AFP.

“But a large foreign group doesn’t do acquisitions in a weekend,” he admitted.

The other solution would have been to nationalise Credit Suisse “to enhance the good bank” and consolidate the poor assets into a “bad bank” to be liquidated, he explained.

However, it is already too late for such what-ifs, Lombardini said.

“It’s like wondering what would have happened if Napoleon had not lost at Waterloo,” he said.

“The real problem is we are going to have an even more ‘too big to fail’ bank,” he warned.

By Nathalie OLOF-ORS

SHOW COMMENTS