UBS mulls acquisition of Credit Suisse and requests government support for deal –
After Credit Suisse Group AG announced plans to borrow 50 billion Swiss francs from the Swiss National Bank, UBS Group AG is reportedly considering taking over the banking giant. However, UBS requires the government to issue a backstop to protect against losses in the event it buys Credit Suisse. According to unnamed sources familiar with the matter, UBS, the world’s largest private bank, wants the government to back the deal.
Credit Suisse’s woes deepen as UBS mulls a takeover amid banking industry challenges
In the modern banking world, a lot of business happens behind the scenes. It was reported on Friday that UBS Group AG is in talks to acquire all or part of banking giant Credit Suisse Group AG. Sources familiar with the talks say the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank are involved in the talks between UBS and Credit Suisse. Swiss regulators say the merger, dubbed “Plan A,” is an attempt to boost investor and depositor confidence in Credit Suisse. On Thursday, Credit Suisse announced it was borrowing 50 billion Swiss francs ($54 billion) from the Swiss National Bank to boost liquidity.
On Saturday, Bloomberg and several other publications reported that merger talks had intensified and that UBS wanted protection from potential losses it could incur if it took over Credit Suisse. Bloomberg employees Jan-Henrik Foerster, Dinesh Nair, Marion Halftermeyer and Esteban Duarte explained that UBS is discussing specific scenarios with the Swiss government. According to sources familiar with the matter, who asked not to be identified, UBS is interested in Credit Suisse’s wealth and asset management units, but the bank wants a state-brokered deal that includes a backstop.
The report went on to say that ahead of the Swiss government-brokered talks, UBS executives were reluctant to take over the rival bank and take on the risks associated with Credit Suisse. Sources familiar with the matter told Reuters that Credit Suisse chief financial officer Dixit Joshi and his team met over the weekend to discuss the bank’s options. In addition to UBS, the report notes that there were several interesting reports from competitors. This is not the first sign of trouble for the Swiss bank, as Credit Suisse and Deutsche Bank suffered from distressed ratings in October last year. Back then, the banking giant’s loan default insurance was approaching 2008 levels.
Credit Suisse’s current problems were exacerbated after the collapses of Silvergate Bank, Silicon Valley Bank and Signature Bank. In addition, 11 lenders injected $30 billion into First Republic Bank last week to prevent the bank from collapsing. Credit Suisse shares have lost around a quarter of their value in the past seven days. Year-to-date, Credit Suisse stock is down 35.58%.
Should the Swiss government provide a backstop to protect UBS’s takeover of Credit Suisse? Let us know what you think about this topic in the comment section below.
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