Economy – UBS in talks to buy out Credit Suisse?

UBS, the first Swiss bank, is in talks for the total or partial takeover of Credit Suisse, its rival in great difficulty, with the express blessing of the Swiss regulatory authorities, the Financial Times said on Friday.

Swiss regulators – the central bank (SNB) and the financial market watchdog (Finma) – told their American and British colleagues that the takeover by UBS was “their plan A” to stop the crisis of confidence from which Credit Suisse is suffering, writes the FT, citing an unnamed source with knowledge of the talks.

The Swiss central bank “wants a simple solution before the markets open on Monday”, assures the business daily, which recognizes that it is not certain that an agreement can nevertheless be found. UBS wants to assess what risks a total or partial takeover of its rival could pose to its own activities.

An easily absorbed prey

The hypothesis of a takeover of Credit Suisse by a bank had also been mentioned by analysts at JP Morgan this week, “with UBS as a potential option”. Given the weight that this merger would confer on the two banks, they imagine that the Swiss branch of Credit Suisse, which includes retail banking and loans to SMEs, could be listed on the stock market or split up. It would also be a way to avoid massive layoffs of employees in Switzerland because of the inevitable duplication of activities.

With its stock crashing to an all-time low of 1.55 Swiss francs on Wednesday, Credit Suisse’s market capitalization has melted, potentially making the bank easy prey to absorb. The idea of ​​a merger of the two largest Swiss banks resurfaces regularly, but is generally dismissed because of competition issues and the risks for the stability of the Swiss financial system given the weight that a merger would give them.

As for UBS, it has spent several years recovering from its severe crisis in 2008, and it is not sure that it wants to embark on a new restructuring now that it is beginning to reap the fruits of its efforts.

Weak link in the banking sector

Credit Suisse has been in turmoil for two years, marked by several scandals, which revealed by management’s own admission “substantial weaknesses” in its “internal control”. Finma had accused him of having “seriously breached his prudential obligations” in the bankruptcy of the financial company Greensill, which marked the start of the black series.

“This is a bank that never seems to get its house in order,” noted IG analyst Chris Beauchamp in a market commentary this week.

But things accelerated on Wednesday when investors – shaken by the bankruptcy of Silicon Valley Bank in the United States – sold off shares of the second Swiss bank. Credit Suisse is considered a weak link in the banking sector since a series of scandals and a restructuring plan that is struggling to convince.

At the end of the day on Wednesday, the Zurich bank’s market capitalization was less than 7 billion Swiss francs, a pittance for one of the 30 banks in the world considered too big to let fail.

On Wednesday evening, after being silent all day, the Swiss central bank offered verbal support and offered liquidity. On the night of Wednesday to Thursday, Credit Suisse borrowed 53 billion Swiss francs from it to give itself a breather and move forward in its restructuring. For the SNB, it was a matter of reassuring markets around the world. It worked for a while, but the stock fell more than 8% on Friday.