Credit Suisse edges closer to weak UBS bid and government aid talks

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Swiss authorities are considering unprecedented moves to force the takeover of Credit Suisse Group AG by UBS Group AG, with the risk of some form of nationalization increasing by the minute before markets open on Monday.

UBS is offering to buy Credit Suisse for about 1 billion francs ($1.1 billion), a deal the troubled Swiss company is pushing back with the backing of its biggest shareholder, Saudi National Bank, people at the newspaper said. current of the case. But its bargaining power is limited because other options can be even more painful for its stock and bond investors.

Swiss officials are weighing changes to the law to avoid the need for shareholder votes on the deal, some people said. They are considering full or partial nationalization of Credit Suisse as a fallback option if a UBS deal falls apart over time, said some people, who requested anonymity to discuss private deliberations.

As regulators and bankers race for a deal aimed at calming markets, officials face stark choices between flouting shareholder rights or risking an escalating crisis. A low-cost deal with no say for the owners risks lawsuits and obstacles for future international investors investing in Switzerland. No resolution in the next 12 hours risks something even worse.

Credit Suisse, which ended Friday with a market value of about 7.4 billion francs ($8 billion), believes UBS’s offer is too low and would hurt shareholders and employees who have deferred actions, the people said. The book value of Credit Suisse’s equity closed last year at 45 billion francs.

A major question is whether Credit Suisse should still be seen as the bank that regulators said Wednesday night had plenty of capital and liquidity and was facing market panic. But Swiss regulators are concerned that customers and counterparties have walked away from the bank over the past week, and officials in the United States and elsewhere are pushing for a definitive solution by the time markets open on Monday to to avoid any fear of contagion in the markets or other financial companies.

UBS’s offer was communicated on Sunday with a price of 0.25 francs per share to be paid in shares. Credit Suisse closed down 8% to 1.86 francs at the close on Friday.

Swiss authorities are seeking to negotiate a deal that would resolve a Credit Suisse rout that sent shockwaves through the global financial system over the past week when panicked investors dumped its stocks and bonds following the collapse of several small US lenders. Years of struggles came to a head after the company said its efforts to win back customers had not halted outflows this year and the Saudi National Bank ruled out taking a bigger stake.

A backstop from the Swiss central bank briefly halted the declines, but the market drama carries the risk that customers or counterparties will continue to flee, with potential ramifications for the wider industry.

UBS is trying to protect itself if it comes up against a large, complex rival with little time to fully check its books. He is seeking government support for certain legal and other costs that may arise in the future, Bloomberg reported on Saturday. UBS also insisted on a material adverse change that voids the deal if its credit default spreads increase by 100 basis points or more, the Financial Times reported.

“Clearly, UBS has no pressure to buy a bunch of mismanaged risk exposures at the market level,” said Frederik Hildner, managing director of Confluente Capital. “Their offer of CHF 0.25 per share indicates that CS is in deep trouble and potentially worthless. Stocks are poised for a sharp decline on Monday unless other solutions come to the rescue tonight.

If government money were put directly into Credit Suisse, Swiss officials would likely demand debt bailouts and additional Tier 1 noteholders to potentially bear losses, said one of those involved in the talks. . At the end of 2022, Credit Suisse had approximately 15 billion francs of AT1 securities and 49 billion francs of bail-in debt instruments.

The complex discussions over what would be the first combination of two global systemically important banks since the financial crisis have seen Swiss and US authorities intervene, according to people familiar with the matter. Talks accelerated on Saturday, with all parties pushing for a solution that can be executed quickly.

Credit Suisse’s process of cutting 9,000 jobs in a bid to save itself would be intensified if the company were taken over by UBS, according to people familiar with the discussions, with one person believing the final toll could be a multiple of that number . The two lenders together employed almost 125,000 people at the end of last year, around 30% of them in Switzerland.

–With help from Jan-Patrick Barnert and Blaise Robinson.

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