Red pedestrian signs outside a bank branch of Credit Suisse Group AG in Basel, Switzerland, Tuesday, October 25, 2022.
Stefan Wermuth | Bloomberg | Getty Images
Rescue Talks Swiss credit rolled into sunday like UBS asked the Swiss government for $6 billion to cover the costs if it were to buy its struggling rival, a person familiar with the talks said.
Authorities are scrambling to resolve a crisis of confidence in the 167-year-old Credit Suisse, the world’s largest bank, caught in the turmoil caused by the collapse of US lenders Silicon Valley Bank and Signature Bank over the past last week.
While regulators want a resolution before markets reopen on Monday, a source warned the talks are facing significant hurdles and 10,000 jobs could have to be cut if the two banks combine.
The guarantees sought by UBS would cover the cost of winding up parts of Credit Suisse and possible litigation costs, two people told Reuters.
Credit Suisse, UBS and the Swiss government declined to comment.
The frantic weekend trading follows a brutal week for bank stocks and efforts in Europe and the United States to shore up the sector. US President Joe Biden’s administration moved to guarantee consumer deposits while the Swiss central bank lent billions to Credit Suisse to stabilize its fragile balance sheet.
UBS was under pressure from Swiss authorities to take over its local rival to bring the crisis under control, two people with knowledge of the matter said. The plan could see Credit Suisse’s Swiss operations spun off.
Switzerland is preparing to use emergency measures to speed up the deal, the Financial Times reported, citing two people familiar with the situation.
US authorities are involved, working with their Swiss counterparts to help broker a deal, Bloomberg News reported, also citing people familiar with the matter.
Berkshire HathawayWarren Buffett has held talks with senior Biden administration officials about the banking crisis, a source told Reuters.
The White House and the US Treasury declined to comment.
UK Finance Minister Jeremy Hunt and Bank of England Governor Andrew Bailey are also in regular contact over the weekend over the fate of Credit Suisse, a source familiar with the matter said. Spokespersons for the UK Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.
Credit Suisse shares lost a quarter of their value last week. The bank has been forced to tap $54 billion in central bank funding as it tries to recover from a series of scandals that have undermined investor and customer confidence.
It ranks among the largest wealth managers in the world and is considered one of the world’s 30 systemically important banks – the failure of one of them would affect the entire financial system.
There were several reports of interest in Credit Suisse from other rivals. Bloomberg reported that Deutsche Bank is considering buying some of its assets, while the US financial giant black rock denied a report that he was part of a competing bid for the bank.
Interest rate risk
The failure of California-based Silicon Valley Bank highlighted how a relentless campaign of interest rate hikes by the US Federal Reserve and other central banks – including the European Central Bank on Thursday – was making pressure on the banking sector.
The SVB and Signature collapses are the largest bank failures in US history, leading to the demise of Washington Mutual during the 2008 global financial crisis.
First Citizens BancShares is evaluating an offer for SVB and at least one other suitor is seriously considering an offer, Bloomberg News reported on Saturday.
Banking stocks around the world have been battered since the SVB collapse, with the S&P Banks Index falling 22%, its biggest loss in two weeks since the pandemic rocked markets in March 2020.
Big US banks have thrown a $30 billion lifeline to small lenders First Republic. US banks have requested a record $153 billion in emergency liquidity from the Federal Reserve in recent days.
The Mid-Size Bank Coalition of America has asked regulators to extend federal insurance to all deposits for the next two years, Bloomberg News reported Saturday, citing a letter from the coalition.
In Washington, the focus has shifted to greater oversight to ensure banks and their executives are held accountable.
Biden called on Congress to give regulators greater power over the sector, including imposing higher fines, recovering funds and banning officials from failing banks.
Quick and dramatic events can mean big banks get bigger, smaller banks can struggle to keep up, and more regional lenders can close.
“People are actually moving their money around, all of these banks are going to look fundamentally different in three months, six months,” said Keith Noreika, vice president of Patomak Global Partners and former Republican U.S. Comptroller of the Currency.