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UBS makes '$2bn' Credit Suisse offer as fears grow over bank collapse
CGTN
Europe;Switzerland
Officials have been racing to save Credit Suisse after a brutal week that saw the second and third largest U.S. bank failures in history. /Arnd Wiegmann/Reuters
Officials have been racing to save Credit Suisse after a brutal week that saw the second and third largest U.S. bank failures in history. /Arnd Wiegmann/Reuters

Officials have been racing to save Credit Suisse after a brutal week that saw the second and third largest U.S. bank failures in history. /Arnd Wiegmann/Reuters

UBS has agreed to buy Swiss banking giant Credit Suisse after increasing its offer to more than $2 billion, the Financial Times reported on Sunday, as authorities bid to stave off turmoil when the markets reopen. UBS and Credit Suisse both declined to comment.

Officials have been racing to rescue the 167-year-old bank, among the world's largest wealth managers, after a brutal week that saw the second- and third-largest U.S. bank failures in history. As one of 30 global banks seen as systemically important, any deal for Credit Suisse could ripple through global financial markets.

At least two major banks in Europe are examining scenarios of contagion possibly spreading in the region's banking sector and looking to the Federal Reserve and the European Central Bank to step in with stronger signals of support, two senior executives with knowledge of the discussions told Reuters.

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A person with knowledge of the talks earlier told Reuters that UBS sought $6 billion from the Swiss government as part of a possible purchase of its rival. The guarantees would cover the cost of winding down parts of Credit Suisse and potential litigation charges.

One source previously said the talks were encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combined. The Swiss Bank Employees Association on Sunday called for the immediate creation of a task force to deal with the risk to jobs.

Swiss broadcaster SRF and other media reported that the government would hold an "important" press conference later on Sunday. They did not give any more details.

Credit Suisse shares lost a quarter of their value last week. The bank was forced to tap $54 billion in central bank funding as it tries to recover from scandals that have undermined the confidence of investors and clients.

Bloomberg News said Credit Suisse resisted an earlier offer of up to $1 billion, believing it to be too low and that it would hurt shareholders and employees who hold deferred stock. If the takeover falls apart, Switzerland is considering taking over the bank in full or holding a significant equity stake, Bloomberg reported.

UBS has also insisted on a "material adverse change" that voids the deal if its credit default spreads jump by 100 basis points or more, the report added. It said there was no guarantee terms will remain the same or that a deal would be reached.

A person with knowledge of the talks earlier told Reuters that UBS sought $6 billion from the Swiss government as part of a possible purchase of its rival. The guarantees would cover the cost of winding down parts of Credit Suisse and potential litigation charges.

One source previously said the talks were encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combined. The Swiss Bank Employees Association on Sunday called for the immediate creation of a task force to deal with the risk to jobs.

Chairperson of the Swiss National Bank Thomas Jordan walks out of a meeting on UBS and Credit Suisse at the Swiss Finance Department, in Bern, Switzerland./Reuters/Denis Balibouse.
Chairperson of the Swiss National Bank Thomas Jordan walks out of a meeting on UBS and Credit Suisse at the Swiss Finance Department, in Bern, Switzerland./Reuters/Denis Balibouse.

Chairperson of the Swiss National Bank Thomas Jordan walks out of a meeting on UBS and Credit Suisse at the Swiss Finance Department, in Bern, Switzerland./Reuters/Denis Balibouse.

Bondholder losses

Bond investors are hopeful a takeover by UBS would mean their Additional Tier 1 bonds are converted into UBS stock and more of their money protected, two bondholders told Reuters.

"If Credit Suisse fails, that would pose a significant systemic issue for bondholders as it would be hard for them to stomach the failure of a bank when it’s not sitting on unrealized investment losses like in the U.S.," said Jerome Legras, head of research at Axiom Alternative Investments, an investor in Credit Suisse's AT1 debt.

The weekend negotiations follow efforts in Europe and the United States to support the sector since the collapse of U.S. lenders Silicon Valley Bank and Signature Bank.

The U.S. Federal Deposit Insurance Corp (FDIC) is now leaning towards a breakup of Silicon Valley Bank SIVB.O after failing to line up a buyer for the company, Bloomberg News reported on Sunday citing people familiar with the matter.

U.S. President Joe Biden's administration moved to backstop consumer deposits while the Swiss central bank lent billions to Credit Suisse to stabilize its balance sheet.

The plan could see Credit Suisse's Swiss business spun off, while Bloomberg reported that the takeover talks were throwing into doubt plans to hive off its investment bank under the First Boston brand.

 

Forceful response

The failure of Silicon Valley Bank brought into focus how a campaign of interest rate hikes by the U.S. Federal Reserve and other central banks – including the European Central Bank on Thursday – was pressuring the banking sector.

SVB and Signature's collapses are the largest bank failures in U.S. history behind the demise of Washington Mutual during the global financial crisis in 2008.

The S&P Banks index has fallen 22 percent in its largest two-week slide since the pandemic shook markets in March 2020.

U.S. banks have sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days and big lenders threw a $30 billion lifeline to smaller lender First Republic FRC.N.

In Washington, the focus has turned to greater oversight to ensure banks and their executives are held accountable with Biden calling on Congress to give regulators greater power over the sector.

 

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Source(s): Reuters

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