Credit Suisse, UBS and their key regulators were racing to strike a deal on the historic merger of Switzerland’s two biggest banks on Saturday evening, people familiar with the situation told the Financial Times.
The Swiss National Bank and regulator Finma have told international counterparts that they see a deal with UBS as the only option to prevent a breakdown in confidence in Credit Suisse. Deposit outflows from the bank peaked at Sfr10bn ($10.8bn) in a single day late last week as fears for its health grew, the two people said.
The boards of both the banks are meeting this weekend. Credit Suisse’s main regulators in the US, UK and Switzerland are considering the legal framework of the deal and several concessions sought by UBS.
UBS wants to be allowed to phase in any demands it faces under global rules on capital for the world’s biggest banks. In addition, UBS has requested some type of indemnity or government agreement to cover future legal costs, one of the people said.
Credit Suisse set aside SFr1.2bn in legal provisions in 2022 and warned that yet-to-be resolved lawsuits and regulatory investigations could add another SFr1.2bn.
UBS, Credit Suisse, the SNB and the Federal Reserve declined to comment. Finma and the Bank of England did not immediately respond to requests for comment.
The race for the deal comes days after the Swiss central bank was forced to provide an emergency SFr50bn ($54bn) credit line to Credit Suisse.
This failed to arrest a slide in its share price, which hit a record low after its biggest investor refused to provide more capital and its chairman admitted that an exodus of wealth management clients had continued.
Shares in other European banks were also hit hard by a crisis of confidence sparked by the collapse of Silicon Valley Bank last week.
The potential takeover marks a stark contrast in the fortunes of the two banks. Over the past three years, UBS shares have gained about 120 percent while those of its smaller rival have fallen about 70 percent.
The former has a market capitalization of $56.6bn, while Credit Suisse closed trading on Friday with a value of $8bn. In 2022, UBS generated a profit of $7.6bn, while Credit Suisse posted a loss of $7.9bn, effectively wiping out the entire past decade of earnings.
Swiss regulators told their US and UK counterparts on Friday evening that the merger of the two banks was “Plan A” to prevent a breakdown in investor confidence in Credit Suisse, one of the people said. There is no guarantee that the deal, which will need to be approved by UBS shareholders, will be reached.
The fact that the SNB and Finma favor the Swiss solution has deterred other potential bidders. US investment firm BlackRock took an adversarial approach, evaluating several options and talking to other potential investors, people briefed on the matter said.
A full merger between UBS and Credit Suisse will create one of the largest global systemically important financial institutions in Europe. UBS has $1.1tn of total assets on its balance sheet and Credit Suisse has $575bn. However, such a large deal may prove too cumbersome to execute.
The Financial Times previously reported that other options under consideration include breaking up Credit Suisse and raising funds through a public offering of its ringfenced Swiss division, selling the wealth and asset management units to UBS or other bidders.
UBS is on high alert for an emergency rescue call from the Swiss government after investors were caught off guard by 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, run by former board member Michael Klein.