According to sources, Swiss banking giant UBS AG (UBSG.S) is contemplating a takeover of its troubled counterpart, Credit Suisse (CSGN.S). The potential acquisition could alleviate concerns that the ongoing crisis at Credit Suisse might destabilize the global financial system.
Credit Suisse's Turbulent Week
The 167-year-old Credit Suisse is the most prominent institution embroiled in the chaos that followed the collapse of U.S. lenders Silicon Valley Bank and Signature Bank. These events have led to a widespread loss of investor confidence worldwide.
Governments and Regulators Step In
U.S. and European banking executives and regulators have taken drastic measures to bolster the industry to restore confidence. The Biden Administration supported consumer deposits, while the Swiss central bank lent billions to Credit Suisse to stabilize its unsteady balance sheet.
Possible Swiss Government Guarantee
According to insiders, Swiss authorities have urged UBS to carry out a takeover of its local rival to contain the crisis. The proposed plan might include a Swiss government guarantee against the risks involved, while Credit Suisse's Swiss business could be spun off.
Deal Finalization and International Involvement
The Financial Times reported that UBS, Credit Suisse, and Switzerland's financial regulator FINMA were hurrying to finalize a merger deal by Saturday evening. According to Bloomberg News, U.S. authorities have also been working with their Swiss counterparts to facilitate the deal.
Credit Suisse's Struggles
Credit Suisse's shares dropped 25% in the past week, and the bank had to access $54 billion in central bank funding as it attempts to bounce back from a series of scandals. This move made Credit Suisse the first major global bank to use an emergency lifeline since the 2008 financial crisis.
Global Interest Rate Risk
The failure of California-based Silicon Valley Bank highlighted how consistent interest rate hikes by the U.S. Federal Reserve and other central banks were putting pressure on the banking sector. SVB and Signature Bank's collapses are the second and third-largest bank failures in U.S. history, following Washington Mutual's downfall in 2008.
U.S. Banks Seeking Emergency Liquidity
Major U.S. banks extended a $30 billion lifeline to smaller lender First Republic (FRC.N), and U.S. banks have requested a record $153 billion in emergency liquidity from the Federal Reserve recently.
Biden's Call for Increased Oversight
U.S. President Joe Biden urged Congress to grant regulators more authority over the banking sector, including imposing higher fines, clawing back funds, and barring officials from failed banks.