By Stefania Spezzati, Oliver Hirt and John O’Donnell
(Reuters) – UBS AG is asking the Swiss government to shoulder about $6 billion in costs if it were to buy Credit Suisse, a person with knowledge of the talks said as the two sides met scrambled to hammer together a deal to restore confidence in the ailing Swiss bank.
Credit Suisse, 167, is the biggest name caught up in the turmoil sparked by the collapse of US lenders Silicon Valley Bank and Signature Bank last week, causing bank stocks to collapse and authorities to do so prompted to take extraordinary measures to keep banks afloat.
The $6 billion in government guarantees UBS is seeking would cover the cost of winding up parts of Credit Suisse and potential litigation costs, two people told Reuters.
One of the sources warned that talks to resolve the crisis of confidence at Credit Suisse are facing significant roadblocks and may require 10,000 job cuts if the two banks are merged.
Swiss regulators are scrambling to present a solution to Credit Suisse ahead of markets reopening Monday, but the complexity of the two giants’ combination raises the prospect that talks will continue well into Sunday, said the person in charge of the sensitivity asked to remain anonymous situation.
Credit Suisse, UBS and the Swiss government declined to comment.
The weekend’s frenetic negotiations follow a brutal week for bank stocks and efforts in Europe and the US to prop up the sector. US President Joe Biden’s administration moved to prop up consumer deposits, while the Swiss central bank lent billions to Credit Suisse to stabilize its shaky balance sheet.
Warren Buffett of Berkshire Hathaway Inc. has held talks with senior Biden administration officials about the banking crisis, a source told Reuters.
The White House and the US Treasury Department declined to comment. Bloomberg News previously reported that Buffett has been in contact with the government over the past few days over the region’s banking crisis, Bloomberg News reported Saturday. The source declined to go into the details of the discussions.
UBS has been pressured by Swiss authorities to complete a takeover of its local rival in a bid to tackle the crisis, two people familiar with the matter said. The plan could see a spin-off of Credit Suisse’s Swiss business.
Switzerland is preparing for emergency measures to speed up the deal, the Financial Times reported, citing two people familiar with the situation.
US authorities are involved and are working with their Swiss counterparts to help broker a deal, Bloomberg News reported, citing people familiar with the matter.
UK Treasury Secretary Jeremy Hunt and Bank of England Governor Andrew Bailey were also in regular contact this weekend about 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 in the last week. It has been forced to tap $54 billion in central bank funds to recover from a series of scandals that have eroded investor and customer confidence.
The company is one of the world’s largest wealth managers and is considered one of 30 global, systemically important banks whose failure would affect the entire financial system.
Banking sector fundamentals are stronger and global systemic connections are weaker than during the 2008 global financial crisis, Goldman analyst Lotfi Karoui wrote in a note to clients late Friday. That limits the risk of a “potential cycle of counterparty credit losses,” Karoui said.
“However, a more vigorous policy response is probably needed to bring some stability,” Karoui said. The bank said uncertainty about Credit Suisse’s future will put pressure on the broader European banking sector.
A senior Chinese central bank official said on Saturday that high interest rates in major developed countries could continue to cause problems for the financial system.
There have been several interesting reports from other competitors for Credit Suisse. Bloomberg reported that Deutsche Bank was exploring the possibility of buying some of its assets, while US financial giant BlackRock denied a report that it was involved in a competing bid for the bank.
INTEREST RATE RISK
The failure of California-based Silicon Valley Bank drew attention as a relentless campaign of rate hikes by the US Federal Reserve and other central banks – including the European Central Bank this week – put pressure on the banking sector. The collapse of SVB and Signature is the second and third largest bank failures in US history, after the collapse of Washington Mutual during the global financial crisis in 2008.
Since the collapse of the SVB, bank stocks around the world have been hurt, with the S&P Banking Index falling 22%, its biggest two-week losses since the pandemic that rocked markets in March 2020.
Big US banks have thrown a $30 billion lifeline to smaller lender First Republic, and US banks as a whole have requested a record $153 billion in liquidity from the Federal Reserve in recent days.
A coalition of mid-sized U.S. banks, the Mid-Size Bank Coalition of America (MBCA), has asked regulators to extend FDIC insurance to all deposits for the next two years, Bloomberg News reported Saturday, citing an MBCA letter to the regulators.
In Washington, the focus has shifted to increased oversight to ensure banks and their executives are held accountable.
Biden called on Congress to give regulators more power over the sector, including imposing higher fines, clawing back funds and banning officials from failed banks.
(Reporting from Reuters offices, letters from Lincoln Feast, Toby Chopra and Deepa Babington and Nick Zieminski, editing by William Mallard, Kirsten Donovan, Hugh Lawson)
