UBS in talks to take over Credit Suisse

CurrencyVeda Analysis on International Trade

People who know about the situation say that UBS Group AG is in talks to take over some or all of Credit Suisse Group AG. This could involve a government backstop, which is part of an urgent effort by Swiss and global authorities to restore trust in the banking system.

This week, Credit Suisse got more than $50 billion in cash from the Swiss National Bank after worries about its future grew. The action wasn’t enough to stop the drop in Credit Suisse’s stock price or the loss of bank deposits, so the central bank and Switzerland’s top financial regulator set up talks with Credit Suisse’s bigger rival, UBS.

People who know about the situation say that the banks have talked about a number of possible outcomes, including ones in which UBS buys all or part of Credit Suisse.

UBS has long been seen as a part of any state-backed solution for Credit Suisse, which has about half as much money in assets as UBS does. With a full-scale takeover, UBS would get some of Credit Suisse’s most valuable businesses, like its wealth clients in Asia and the Middle East. However, it might also get some of Credit Suisse’s less desirable businesses, like its troubled investment bank. It could also throw off UBS’s current strategy and investors’ sense of stability.

FactSet says that UBS has a market capitalization of about $65 billion, while Credit Suisse’s is only $8 billion.

Both banks are considered to be “systemically important” in Switzerland and around the world. If they merged, they might have to go through more oversight and pay more capital charges.

The Swiss government is likely to reach at least a rough deal before the markets open on Monday. A spokesman for both the financial regulator Finma and the SNB said that they had nothing to say. A spokeswoman for the ministry of finance said that it doesn’t talk about rumours.

The Financial Times first reported on the talks, which might not lead to a deal between Credit Suisse and UBS. They are the two banks with the most assets in Switzerland. They serve savers, businesses, and wealthy people from all over the world. Both have investment banks on Wall Street and large parts that take care of assets.

UBS may not be the only company involved. People who are familiar with the situation said that other financial institutions are looking into the situation to see if they could buy parts of Credit Suisse or make back-up bids.

Large asset managers have wanted the bank’s European real estate and U.S. asset-management businesses for a long time. Executives at Credit Suisse have turned down these offers many times, saying that asset management is a key part of the company’s business.

Credit Suisse’s move towards asking the government for help came after other banks and big investors stopped doing business with the Swiss lender last week. People who know about the situation say that other investment firms stopped doing business with the bank in the fall as the bank’s problems, which had been going on for years, got worse.

Analysts have been worried that wealthy clients will pull their money. Last week, executives at other banks said that clients of Credit Suisse put money into their banks.

When UBS got stuck with billions of bad assets in its U.S. business nearly 15 years ago, Switzerland bailed it out. Now, Credit Suisse is using UBS to save itself. Credit Suisse turned down help from the government at the time and came out of the crisis in better shape.

It was then hurt by tighter rules about money and expensive settlements with regulators. The bank went through a number of changes. Some of Credit Suisse’s new management team used to work at UBS, and they asked for more time to show they could fix things.

Source: Team CurrencyVeda