Crunch time for Credit Suisse talks as UBS seeks Swiss assurances

Talk about rescue Credit Switzerland rolled into Sunday as UBS is seeking $6 billion from the Swiss government to cover costs if it buys its struggling rival, people familiar with the talks said.

Authorities are scrambling to resolve a crisis of confidence at 167-year-old Credit Suisse, the world’s most important bank caught up in the turmoil caused by the collapse of US lenders Silicon Valley Bank and Signature Bank over the past week.

While regulators want a resolution before markets reopen on Monday, one source warned that talks have hit significant hurdles, and 10,000 jobs may have to be cut if the two banks merge.

The collateral that UBS wants will cover the cost of winding down Credit Suisse’s share and potential litigation costs, two people told Reuters.

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

The tense weekend negotiations followed a brutal week for banking stocks and efforts in Europe and the US to keep the sector afloat. US President Joe Biden’s administration is turning to consumer deposits as the Swiss central bank lends billions to Credit Suisse to stabilize its shaky balance sheet.

UBS is under pressure from Swiss authorities to take over a local rival to control the crisis, two people familiar with the matter said. The plan could result in the dissolution of Credit Suisse’s Swiss business.

Switzerland is prepared 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, working with their Swiss counterparts to help broker a deal, Bloomberg News reported, citing people familiar with the matter.

Berkshire HathawayWarren Buffett has held discussions with senior Biden administration officials about the banking crisis, sources told Reuters.

The White House and the US Treasury declined to comment.

British finance minister Jeremy Hunt and Bank of England Governor Andrew Bailey are also in regular contact this weekend over the fate of Credit Suisse, sources familiar with the matter said. Spokesmen for the UK Treasury and the Bank of England Prudential Regulation Authority, which oversees the lender, declined to comment.

Credit Suisse shares have lost a quarter of their value in the past week. The bank has been forced to tap $54 billion in central bank funding as it tries to recover from a series of scandals that have damaged the confidence of investors and clients.

It ranks among the world’s largest wealth managers and is considered one of the 30 global systemically important banks – any failure would ripple through the entire financial system.

There have been several reports of interest in Credit Suisse from other competitors. Bloomberg reports that Deutsche Bank is considering buying some assets, while the US financial giant BlackRock want to report that they are participating in a competitive bid for the bank.

The failure of California-based Silicon Valley Bank has put a spotlight on the ongoing campaign of interest rate hikes by the US Federal Reserve and other central banks – including the European Central Bank on Thursday – putting pressure on the banking sector.

The collapse of SVB and Signature was the largest bank failure in US history after the demise of Washington Mutual during the global financial crisis in 2008.

First Citizens BancShares is evaluating the offer for SVB and at least one other applicant is seriously considering the offer, Bloomberg News reported on Friday.

Banking stocks globally have been battered since SVB collapsed, with the S&P Banks index down 22%, the biggest two-week loss since the pandemic rocked markets in March 2020.

Big U.S. banks threw $30 billion in lifelines to smaller lenders The first republic. US banks have requested a record $153 billion in emergency liquidity from the Federal Reserve in recent days.

The Coalition of American Mid-Size Banks is asking regulators to extend federal insurance for all deposits over the next two years, Bloomberg News reported Friday, citing a letter from the coalition.

In Washington, the focus has been on greater oversight to ensure that banks and executives are held accountable.

Biden called on Congress to give the sector greater authority, including higher fines, withdrawing funds and banning officials from failing banks.

A swift and dramatic turn of events could mean big banks get bigger, smaller banks may have to go bankrupt and more regional lenders could close.

“People are really moving money around, all these banks are going to look different in three months, six months,” said Keith Noreika, vice president of Patomak Global Partners and a former Republican US watchdog.