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ECONOMY

UBS, Credit Suisse lock horns in takeover talks

UBS is prepared to take over its troubled Swiss rival Credit Suisse but only for a knockdown price, reports said Sunday amid urgent talks aimed at saving the embattled bank from a bloodbath when the markets reopen.

Published: 19 March 2023 15:59 CET
UBS, Credit Suisse lock horns in takeover talks
Photo: Fabrice COFFRINI/AFP

The two largest banks in the wealthy Alpine nation famed for its banking prominence have been in negotiations throughout the weekend with the government, the central bank and financial regulators all involved.

The Financial Times newspaper, which was the first on Friday to report the prospect of Switzerland’s biggest bank swallowing up Credit Suisse, said UBS had offered to buy it for up to $1 billion.

The transaction would be worth 25 cents (0.23 Swiss francs) per Credit Suisse share, the FT said.

After suffering heavy falls on the stock market last week, Credit Suisse’s share price closed Friday at 1.86 Swiss francs, with the bank worth just over $8.7 billion.

Credit Suisse’s share price has tumbled from 12.78 Swiss francs in February 2021 due to a string of scandals that it has been unable to shake off.

Bloomberg reported that Credit Suisse was pushing back on the UBS offer, with the support of its largest shareholder, believing that it is too low.

Time is money

But the clock is ticking until the Swiss stock exchange reopens at 0800 GMT Monday. UBS is being urged by the authorities to get a deal over the line in time, in a bid to reassure investors and avoid a wave of contagious panic on the markets.

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.

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 newspaper.

“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 FT said, citing unnamed sources.

The 20 Minuten newspaper filmed members of the Swiss government, including President Alain Berset, heading into the finance ministry in Bern early Sunday.

The government did not respond when contacted by AFP on Sunday.

‘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 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.

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

The Swiss Bank Employees Association said there was “a great deal at stake” for the 17,000 Credit Suisse staff, “and therefore also for our economy”.

“In addition, tens of thousands of jobs outside of the banking industry would potentially be at risk,” it added, calling for a task force to be established to manage the situation.

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 considered 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.

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. That saw the SNB step in overnight with a $54-billion lifeline.

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

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

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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

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