UBS seeks $6 billion in government guarantees for Credit Suisse acquisition Pipa News

UBS AG is asking the Swiss government to cover about US$6 billion in costs if it were to buy Credit Suisse, a person with knowledge of the talks said, as the two sides rushed to finalize a deal to boost confidence in the ailing Swiss bank to recover.

The 167-year-old Credit Suisse is the biggest name caught up in the turmoil sparked by the collapse of US lenders Silicon Valley Bank and Signature Bank over the past week. banks float.

The $6 billion in government guarantees that UBS is seeking would cover the cost of winding down parts of Credit Suisse and potential litigation costs, two people told Reuters.

One of the sources warned that talks to resolve Credit Suisse’s crisis of confidence are running into significant obstacles and that 10,000 jobs may need to be cut if the two banks merge.

Swiss regulators are scrambling to present a solution for Credit Suisse before markets reopen on Monday, but the complexity of combining two behemoths raises the prospect that talks will last well into Sunday, said the person, who asked for anonymity. due to the sensitivity of the situation.

Credit Suisse, UBS and the Swiss government declined to comment.

The frantic weekend negotiations come after a brutal week for banking stocks and efforts in Europe and the US to support the sector. US President Joe Biden’s administration backstopped consumer deposits, while the Swiss central bank lent billions to Credit Suisse to stabilize its shaky balance sheet.

UBS was under pressure from Swiss authorities to go ahead with a takeover of its local rival to bring the crisis under control, two people with knowledge of the matter said. The plan could lead to a privatization of Credit Suisse’s Swiss operations.

Switzerland is preparing to use emergency measures to speed up the deal, the Financial Times reported, citing two people familiar with the situation.

U.S. authorities are involved and are working with their Swiss counterparts to help seal a deal, Bloomberg News reported, also citing those familiar with the matter.

UK Chancellor of the Exchequer Jeremy Hunt and Bank of England Governor Andrew Bailey are also in regular contact over the weekend over the fate of Credit Suisse, a source familiar with the matter said. Spokesmen for the UK Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.

Powerful response

Credit Suisse shares lost a quarter of their value last week. It was forced to tap $54 billion in central bank funding as it attempted to recover from a series of scandals that have eroded investor and customer confidence.

The company is among the world’s largest asset managers and is considered one of 30 globally systemically important banks whose failure would spill throughout the financial system.

The fundamentals of the banking sector are stronger and global systemic linkages are weaker than they were during the 2008 global financial crisis, Goldman analyst Lotfi Karoui wrote in a late Friday letter to clients. That limits the risk of a “potential vicious circle of credit losses from counterparties,” Karoui said.

“However, a stronger policy response is probably needed to bring some stability,” Karoui said. The bank said the lack of clarity about Credit Suisse’s future will put pressure on the wider European banking sector.

A senior official at China’s central bank said on Saturday that high interest rates in major developed economies could continue to cause problems for the financial system.

There were multiple reports of interest in Credit Suisse from other rivals. Bloomberg reported that Deutsche Bank was exploring the option of purchasing some of its assets, while US financial giant BlackRock denied a report that its vice chairman, Philipp Hildebrand, was participating in a rival bid for the bank. When asked about the report, BlackRock spokesman Ryan O’Keeffe said in a telephone interview that “Philipp is not formally involved in these discussions at all.”

Warren Buffett of Berkshire Hathaway Inc has been in contact with senior officials in President Joe Biden’s administration over the past few days about the regional banking crisis, Bloomberg News reported, citing people familiar with the matter.

There were multiple reports of interest in Credit Suisse from other rivals. Bloomberg reported that Deutsche Bank was eyeing the option of purchasing some of its assets, while US financial giant BlackRock denied a report that it was participating in a rival bid for the bank.

Interest risk

The bankruptcy of California-based Silicon Valley Bank highlighted how a relentless campaign of rate hikes by the US Federal Reserve and other central banks – including this week the European Central Bank – strained the banking sector. The SVB and Signature collapses are the second and third largest bank failures in U.S. history following the collapse of Washington Mutual during the 2008 global financial crisis.

Banking stocks worldwide have been battered since the SVB collapse, with the S&P Banks index falling 22%, the biggest two weeks of losses since the pandemic shook markets in March 2020.

Major US banks threw a $30 billion lifeline at smaller lender First Republic, and US banks have collectively sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days.

A coalition of mid-sized US banks, the Mid-Size Bank Coalition of America (MBCA), has asked regulators to expand FDIC insurance to all deposits for the next two years, Bloomberg News reported Saturday, citing an MBCA letter. to regulators.

In Washington, the focus has shifted to more oversight to ensure that banks and their executives are held accountable.

Biden called on Congress to give regulators more power over the industry, including by imposing higher fines, recovering funds and barring officials from failing banks.

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