According to two persons with knowledge of the situation, UBS AG was looking into an acquisition of troubled lender Credit Suisse on Saturday that might see the Swiss government provide a guarantee against the risks involved.
The largest company implicated in the market turbulence caused by the failure of American lenders Silicon Valley Bank and Signature Bank over the past week is the 167-year-old Credit Suisse, and its decline has stoked concerns about more widespread banking issues.
The Swiss authorities were pressuring UBS to conduct a takeover in order to stabilise the issue, according to sources with Reuters. The Swiss division of Credit Suisse may be spun off under the idea, they continued.
When contacted by Reuters, UBS and Switzerland’s financial market watchdog FINMA declined to comment.
Those with knowledge of the situation claimed that Credit Suisse Chief Financial Officer Dixit Joshi and his staff met over the weekend to discuss their options for the bank.
The bank’s stock price fluctuated significantly this week, forcing it to borrow $54 billion from the central bank. By Friday night, Credit Suisse had lost a quarter of its market value.
Switzerland, long regarded as a model of banking stability, was in a reflective mood as executives debated the direction of the major lenders in the nation.
On Saturday morning, “Banks in constant stress” was the front page headline of the Neue Zuercher Zeitung.
One of the top 30 globally systemically significant banks, Credit Suisse is one of the biggest wealth managers in the world and its bankruptcy would have an impact on the whole financial system.
Five sources with direct knowledge of the situation told Reuters that at least four of Credit Suisse’s main competitors, including Societe Generale SA and Deutsche Bank AG, have placed limits on their trading involving the Swiss bank or its securities.
A lack of certainty on Credit Suisse’s future would put pressure on the region’s larger financial sector, according to Goldman Sachs, which reduced its recommendation on exposure to European bank debt.
While American banks as a whole have recently requested a record $153 billion in emergency liquidity from the Federal Reserve, huge U.S. banks just this week gave a $30 billion lifeline to smaller lender First Republic.
This was due to “funding and liquidity pressures on banks, driven by eroding depositor trust,” according to ratings agency Moody’s, which this week downgraded its outlook on the U.S. banking sector to negative.
More oversight was the topic of discussion in Washington in order to guarantee that bank executives would be held accountable.
President of the United States Joseph Biden urged Lawmakers to grant regulators more authority over the industry, including the ability to levy larger fines, seize funds, and bar officials from failing banks.
According to the office of Representative Adam Schiff, certain Democratic members requested that the Justice Department and authorities look into Goldman Sachs’ involvement in the collapse of SVB.
MARKET DIFFICULTIES GROW
Since Silicon Valley Bank’s demise, banking stocks have suffered globally, raising concerns about more flaws in the financial system.
On Friday, U.S. regional bank shares plunged precipitously, and the S&P Banks index suffered a 21.5% decline, the largest two-week calendar loss since the pandemic rattled markets in March 2020.
First Republic Bank lost more than 80% of its value over the previous 10 trading sessions as of Friday’s close, falling 32.8%.
Although First Republic was saved from failure this week by backing from some of the largest names in American banking, investors were taken aback by revelations on its financial position and the amount of urgent financing it required.
The demise of SVB, on the other hand, highlighted how pressure was being placed on the banking industry by a relentless campaign of interest rate increases by the U.S. Federal Reserve and other central banks, including the European Central Bank this week.
According to many analysts and authorities, SVB’s failure was caused by its specialised, technologically oriented business strategy, while the broader banking system was far more resilient as a result of changes made in the years following the global financial crisis.
But, a top official at China’s central bank stated on Saturday that the financial system may continue to experience issues as a result of the main developed economies’ high interest rates.