UBS reportedly seeks $6 billion in government guarantees for Credit Suisse takeover

UBS asked the Swiss government to cover about $6 billion in costs if they buy Credit Switzerlandpeople with knowledge of the talks said, as both sides raced to hammer together a deal to restore confidence in the sick Swiss bank.

Credit Suisse, 167 years old, is the biggest name caught up in the chaos unleashed by the collapse of US lenders Silicon Valley Bank and Signature Bank over the past week, triggering a rout in banking stocks and prompting authorities to rush into extraordinary measures to guard. floating banks.

The $6 billion government guarantee UBS is seeking will cover the cost of winding down the Credit Suisse division and potential litigation costs, two people told Reuters.

One of the sources warned that talks to resolve the crisis of confidence at Credit Suisse have hit significant obstacles, and 10,000 jobs may have to be cut if the two banks merge.

Swiss regulators are racing to come up with a solution for Credit Suisse before markets reopen on Monday, but the complexity of merging the two behemoths raises the prospect that talks will continue into Sunday, said the person, who asked to remain anonymous due to sensitivity. circumstances.

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

The tense weekend negotiations came after 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.

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. It 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.

The firm is among the world’s largest wealth managers and is considered one of the 30 global systemically important banks that will fail across the entire financial system.

Banking sector fundamentals 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 note to clients. That limits the risk of a “potential vicious circle of counterparty credit losses,” Karoui said.

“However, a stronger policy response may be needed for stability,” Karoui said. The bank said a lack of clarity about Credit Suisse’s future would pressure the broader European banking sector.

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

There have been several reports of interest in Credit Suisse from other competitors. Bloomberg reported Deutsche Bank looking at the possibility of buying some of its 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 this week – putting pressure on the banking sector. The collapse of SVB and Signature are the second and third largest bank failures in US history after the demise of Washington Mutual during the global financial crisis in 2008.

Banking stocks around the world 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 republicand US banks have all sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days.

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.