Switzerland is preparing to use emergency measures to rush a takeover by UBS of Credit Suisse, according to two people familiar with the situation, as banks and regulators rush to hammer out a merger deal.
Under Swiss rules, UBS must normally give shareholders six weeks to consult on the acquisition, which would combine Switzerland’s two biggest lenders.
Two people briefed on the situation said UBS had indicated that emergency measures would be used to get through the consultation period. The details are still being worked out, one of the people said.
Swiss regulators and the finance ministry did not immediately respond to requests for comment. The Swiss central bank, Credit Suisse and UBS declined to comment.
The Swiss National Bank and regulator Finma have told their international counterparts that they consider a deal with UBS the only option to arrest the collapse in confidence in Credit Suisse and seek to reach a regulatory agreement on Saturday night.
Deposit outflows from banks topped SFr10bn ($10.8bn) in a single day late last week amid fears for their health, according to two people familiar with the situation.
The boards of the two banks are meeting this weekend. Credit Suisse’s main regulators in the US, UK and Switzerland are considering the legal structure of the deal and some of the concessions that UBS has asked for.
UBS wants to be allowed to impose any demands it would have under global rules on capital for the world’s biggest banks. In addition, UBS is seeking some form of compensation or government approval to cover future legal costs, one of the people said.
Credit Suisse has set aside SFr1.2bn in legal provisions by 2022 and warned that pending lawsuits and regulatory investigations could add another SFr1.2bn.
UBS’s leadership team has concerns about taking over investment bank Credit Suisse, which has been the source of many scandals and losses in recent years, according to people familiar with its thinking. They want to re-evaluate the case because they are shedding a lot of business to the new CS First Boston division.
The race for a deal comes days after the Swiss central bank was forced to provide a SFr50bn ($54bn) emergency credit line to Credit Suisse.
It failed to arrest the slide in share prices, which have fallen to record lows after the biggest investors stopped providing more capital and the chair admitted that the exodus of wealth management clients continued.
Shares of other European banks were also hit hard by the crisis in confidence triggered by the collapse of Silicon Valley Bank last weekend.
The prospective takeover reflects a stark difference in the fortunes of the two banks. Over the past three years, UBS shares have gained about 120 percent, while their smaller rivals have fallen about 70 percent.
The former has a market capitalization of $56.6bn, while Credit Suisse closed trading on Friday with a value of $8bn. By 2022, UBS will generate $7.6bn in revenue, while Credit Suisse will lose $7.9bn, effectively wiping out all of its previous decade’s earnings.
Swiss regulators told their U.S. and U.K. counterparts on Friday afternoon that merging the two banks was “plan A” to arrest the collapse in investor confidence in Credit Suisse, one of the people said. There is no guarantee that a deal will be reached.
Negotiators have given Credit Suisse the code name Cedar and UBS referred to it as Ulmus, according to people briefed on the matter.
The fact that the SNB and Finma chose the Swiss solution has blocked other potential bidders. US investment giant BlackRock has made a competing approach, evaluating several options and talking to other potential investors, according to people briefed on the matter.
The full merger between UBS and Credit Suisse will create one of the most globally systemically important financial institutions in Europe. UBS has $1.1tn of total assets on its balance sheet and Credit Suisse has $575bn. However, such a big deal may not work out.
The Financial Times has previously reported that other options under consideration include breaking up Credit Suisse and raising funds through a public offering of its ringfenced Swiss division, with wealth and asset management units sold to UBS or other bidders.
UBS has been on high alert for an emergency rescue call from the Swiss government after investors became wary of Credit Suisse’s latest restructuring. Last year, chief executive Ulrich Körner announced plans to cut 9,000 jobs and spin off much of the investment bank into a new entity called First Boston, run by former board member Michael Klein.