Switzerland’s biggest banks, Credit Suisse and UBS, are reportedly in talks with their key regulators to work out a deal on a merger. Reports suggest that the Swiss National Bank and regulator Finma consider a deal with UBS as the only option to prevent a collapse in confidence in Credit Suisse. Deposit outflows from the bank have exceeded $10.8bn a day as fears for its health mounted. UBS has requested concessions to be allowed to phase in any demands it would face under global rules on capital for the world’s biggest banks. A full merger would create one of the largest global systemically important financial institutions in Europe, with total assets on UBS’s and Credit Suisse’s balance sheets worth $1.1tn and $575bn, respectively.
Important Details about UBS and regulators rush to seal Credit Suisse takeover deal: reports –
– Credit Suisse and UBS are negotiating a merger deal.
– Swiss National Bank and regulator Finma believe a merger with UBS is the only option to stop a collapse in confidence in Credit Suisse.
– Deposit outflows from Credit Suisse topped Sfr10bn ($10.8bn) a day last week.
– Boards of the two banks are meeting over the weekend.
– UBS wants to phase in demands they would face under global capital rules and have an indemnity or government agreement for future legal costs.
– The Swiss central bank provided an emergency SFr50bn ($54bn) credit line to Credit Suisse, which failed to stop a slide in its share price.
– Deutsche Bank is monitoring the situation at Credit Suisse for a potential acquisition of certain businesses.
– BlackRock evaluated a rival approach, but denied working on a possible rival bid for Credit Suisse.
– A full merger would create one of the biggest global systemically important financial institutions in Europe.
The Potential Merger of Credit Suisse and UBS: Regulators in Discussions
Credit Suisse and UBS, Switzerland’s two largest banks, are currently in talks about a potential merger as they attempt to build investor confidence in Credit Suisse in the face of deposit outflows exceeding $10 billion last week. The Swiss National Bank (SNB) and regulator Finma have suggested that a deal with UBS could be the only option to cease the collapse of confidence in Credit Suisse that is currently occurring.
UBS is seeking to phase in any demands it would face regarding global rules on the capital for the world’s largest banks, and has also requested some form of indemnity or government agreement to cover eventual legal costs. Credit Suisse, UBS, the SNB and the Federal Reserve have refused to comment on this issue, whilst Finma and the Bank of England have not yet publically responded. The discussions follow a credit line of $54 billion that was agreed by the SNB to Credit Suisse in the preceding week in an attempt to steady its decline.
Credit Suisse’s chair has reportedly admitted that its loss of wealth management clients is continuing, whilst the share price has fallen to an all-time low. In contrast, UBS is currently experiencing its best three years ever, having gained nearly 120% over that period, whereas Credit Suisse has fallen by over 70% in the same timeframe. Credit Suisse has a current market capitalisation of $8 billion, whereas UBS has a value of $56.6 billion. In 2022, UBS generated $7.6 billion of profit, wheres Credit Suisse suffered a $7.9 billion loss which wiped out all of the company’s earnings from the previous decade.
In a situation like this, many investors are beginning to consider neighbouring businesses. Bloomberg News has already reported that Deutsche Bank AG is considering acquiring specific businesses from Credit Suisse, whilst American investment firm BlackRock has drawn up a rival approach and is in discussion with potential investors over this issue. Controversially, it seems that BlackRock denied that it was working on a possible rival bid for Credit Suisse Group AG, as reported by Bloomberg News.
The full merger of Credit Suisse and UBS would result in one of Europe’s largest, most systemically important financial institutions. With $1.1 trillion of total assets on its balance sheet, UBS is bigger than Credit Suisse, which has $575 billion in total assets.
The Progression of the Merger
Credit Suisse’s and UBS’ regulatory bodies have been discussing the legal structure of a merger and various takeouts since the possible merger was reported. The two banks’ boards held a meeting over the weekend to consider options in more detail whilst the SNB sought to gain traction on discussions over the indemnity or government agreement.
Credit Suisse faced multiple issues last week, which has brought the bank closer to its goal of a merger with UBS. In addition to its significant loss of wealth management clients and its share price falling to an all-time low, its largest investor has also ruled out providing any capital for the company. All of these issues have resulted in deposit outflows that continued for more than a week.
The regulatory pressure to find a solution to Credit Suisse’s diminishing confidence has been mounting on credit Swiss, and UBS’ ongoing interest marks an opportunity in a challenging situation. With Credit Suisse’s investors losing faith, the prospect of a merger may be one of the few options left to save the business, having suffered a substantial loss in the preceding year.
The Challenges and Opportunities of the Merger
A merger between Credit Suisse and UBS would face significant challenges in the operational and financial spheres. The most significant hurdle would be combining the two banks, as both parties possess unique corporate cultures, which can impact the outcome of a merger. The organisations are also expected to hold differing opinions on potential staffing issues, and downsizing could be a necessary concern.
At the same time, the UBS and Credit Suisse units are very similar, and combining these will result in a powerful business. Revenue synergies would also be expected because the two businesses have similar products, which creates the possibility of a positive outcome from this merger. A joint Credit Suisse and UBS would lead to greater market share and operational efficiency, both of which are essential in the banking sector, and the merged companies could become one of the largest asset managers in the world.
There may also be ecological and state-related benefits to the prospective merger, meaning that it could aid in emboldening the long-term fortunes of Switzerland’s financial industry. Before any new major bank could be created, an updated law would also be necessary, and a banking license would need to be awarded. The updated law would provide benefits, including being able to improve access to the ECB’s low interest rates, and the possibility of the merger increasing the companies’ creditworthiness.
Regulatory authorities will be observing any merger proposal closely to ensure a solution towards potential issues. The banks’ respective headcounts, cultural differences and locations will all be considerations in any agreement, as these factors can impact whether a merger will be successful.
A Future for Credit Suisse
The merger proposal could certainly save Credit Suisse from severe losses or even bankruptcy, thus giving the company a future. Credit Suisse is currently facing significant issues with its share price continuing its downward trajectory, its largest investor refusing to provide any capital, and deposit outflows exceeding $10 billion.
Evidence from previous mergers suggests that the culture of a company plays a significant role, meaning that a successful merger between Credit Suisse and UBS would require an immense effort to bring the employees’ cultures together. At the same time, the regulatory authorities will also be closely scrutinizing any such proposal.
Considering the strong challenges and benefits that arise with the proposed merger, Credit Suisse’s shareholders, as well as the banking sector, will be looking closely to ensure that Credit Suisse remains on a viable path for the future, and it remains to be seen whether the proposed merger is the solution.