The lifeline of 50,000 million Swiss francs that Credit Suisse requested last Thursday from the Swiss Central Bank to tackle the financial crisis in which it finds itself, barely helped it to take a breath before the stock market collapse of 90% of its value that it suffered last Wednesday.
Yesterday, Friday, with the market closed, the rumors that the market had traveled throughout the day were confirmed. The Financial Times newspaper confirmed that the big Swiss bank UBS announced that it was considering the acquisition of Credit Suisse.
According to market sources quoted by the financial newspaper, Swiss financial regulators have urged the country’s largest bank to come to the rescue of its competitor in order to avoid further financial contagion, caused by the bleeding of deposits that Credit Suisse he is no longer able to tackle.
Throughout this weekend the talks will focus on whether UBS acquires all of troubled Credit Suisse or just a part and the cost of the operation.
Swiss regulators’ goal is to convince UBS to agree to a full merger, but with the specters of the 2008 financial crisis still lingering, and doubts about the untapped potential risks at Credit Suisse, UBS’s board is not trust in operation, which is why it is demanding the relevant financial cushions from the authorities.
The boards of directors of both entities are meeting this weekend and it is expected that they will reach an agreement on Sunday afternoon, at the latest, according to international agencies.
A government-brokered deal would fix the Credit Suisse problem, which has rocked the global financial system this week as panicked investors dumped their stocks and bonds after the collapse of several smaller US lenders. Liquidity support from the Swiss central bank briefly halted declines, but the market drama carries the risk that clients or counterparties will continue to flee, with potential ramifications for the broader sector.
The government, central bank and Finma have been in close contact to discuss new ways to stabilize Credit Suisse, Bloomberg reported earlier this week. Ideas being floated include a breakup of the bank’s Swiss unit and an orchestrated merger with UBS, people familiar with the matter previously said. Executives at UBS and Credit Suisse had opposed such an arranged combination, people familiar with the matter said earlier this week.
UBS would prefer to focus on its own independent wealth-focused strategy and is reluctant to take risks related to Credit Suisse, the people said, asking not to be named as the deliberations are private, Bloomblerg reported.
Credit Suisse is buying time to see through its turnaround after winning the $54 billion credit facility from the central bank, they said.
Credit Suisse’s market value has plummeted to about 7.4 billion Swiss francs (8 billion euros), from a 2007 high of more than 100 billion Swiss francs. The market value of UBS is 60,000 million euros.
