Credit Suisse’s Negotiations Under Heavy Pressure

In order to save the major Swiss bank Credit Suisse, the government in Bern met for crisis meetings. The bank UBS demands state guarantees for a takeover – and according to a report offers up to one billion dollars.

How the ailing major Swiss bank Credit Suisse will continue remains uncertain. The Swiss government met last night for an emergency meeting, but did not say whether it had come to a decision. According to media reports, another meeting took place today.

According to the “Financial Times”, a complete or partial takeover of the bank by the largest Swiss bank UBS is in the offing. Accordingly, UBS is said to have offered to buy its smaller rival for up to a billion dollars. On Friday, the major Swiss bank was still worth around eight billion francs on the stock exchange. UBS insisted on a clause that the deal would lapse if credit default swaps (CDS) on its own bonds rose by 100 basis points or more.

According to another media report, the offer from Credit Suisse was not well received. The Bloomberg news agency reported that the bank is said to have rejected UBS’s terms with the backing of its largest shareholders. The Swiss authorities plan to change the law in such a way that a shareholder vote for the transaction could be bypassed, according to the Financial Times.

Insider: Authorities are pushing UBS to take over

As the newspaper reported, citing insiders, the supervisory boards of the two largest Swiss credit institutions wanted to meet separately at the weekend to discuss a takeover. According to the tabloid Blick, an extraordinary meeting is also planned for today in Bern, where the government and bank executives would meet.

The Reuters news agency reported, citing “two people familiar with the situation”, that Swiss regulators were urging UBS to gobble up its smaller local rival. UBS had previously repeatedly spoken out against a takeover of Credit Suisse – most recently on Tuesday. Negotiations are tough, a source told Reuters.

State guarantees as a prerequisite

According to the “Financial Times”, a condition for a deal is state securities. The government should provide a guarantee for the risks associated with the takeover. The government guarantees are in the order of around $6 billion, an insider told Reuters. Depending on the terms of the transaction, it could be more or less. The guarantees would cover the cost of winding up parts of Credit Suisse and possible other risks, two people said. If the takeover comes about, 10,000 jobs would have to be cut.

The deal between the two banks could be signed as early as Sunday evening. The authorities tried to come up with a solution before the stock market started on Monday. But there is no guarantee that terms will remain the same or that an agreement will be reached, the Financial Times said. Spokesmen for Credit Suisse, UBS and the Swiss Ministry of Finance declined to comment or could not be reached.

According to a report by the broadcaster Sky News, the Bank of England indicated that it would agree to a takeover by UBS. The British central bank has signaled to its international colleagues and UBS that it will support the emergency transaction, the broadcaster further reported. Great Britain is an important market for Credit Suisse.

Banking crisis should be avoided

After scandals and mismanagement, Credit Suisse was already ailing. With the collapse of the US financial institution Silicon Valley Bank (SVB), it got into another downward spiral. The Swiss National Bank then provided the institute with loans of up to CHF 50 billion – the equivalent of almost EUR 51 billion. However, the measure was only able to stop the downward trend in the share price temporarily.

It is the first time since the financial crisis of 2007 that a central bank has felt compelled to provide support for such a large bank. For the central bank, financial regulators and the government, it is now also a question of preventing a general banking crisis. The government in Bern is under enormous pressure to stabilize the situation.

Credit Suisse is one of the 30 global systemically important banks. Their failure would shake the international financial system.