UBS and regulators rush to seal acquisition deal with Credit Suisse

Credit Suisse, UBS and their key regulators are scrambling to negotiate an agreement on the historic merger of Switzerland’s two largest banks as early as Saturday night, people familiar with the situation told the Financial Times.

The Swiss National Bank and the regulator Finma have told international colleagues that they see a deal with UBS as the only option to stop a loss of confidence in Credit Suisse. Two people said deposit outflows from the bank topped 10 billion francs ($10.8 billion) a day late last week amid mounting fears for their health.

The board members of the two banks are meeting this weekend. Credit Suisse’s key regulators in the US, UK and Switzerland are considering the legal structure of a deal and several concessions that UBS has requested.

UBS wants all of the demands it would face under global capital rules for the world’s largest banks to be phased in. In addition, UBS has sought some form of compensation or government settlement to cover future legal costs, one of the people said.

Credit Suisse set aside CHF 1.2 billion in statutory provisions in 2022 and warned that pending lawsuits and regulatory investigations could add another CHF 1.2 billion.

UBS, Credit Suisse, the SNB and the Federal Reserve all declined to comment. Finma and the Bank of England did not immediately respond to requests for comment.

The race for a deal comes days after the Swiss central bank was forced to provide Credit Suisse with a 50 billion franc ($54 billion) emergency credit line.

That failed to stem a fall in its share price, which fell to record lows after its largest investor ruled out providing more capital and its chairman admitting that the churn of wealth management clients had continued.

Stocks of other European banks have also been hit hard by the crisis of confidence triggered by the collapse of Silicon Valley Bank last weekend.

The prospective takeover reflects the strong divergence in the fortunes of the two banks. Over the past three years, UBS shares have gained around 120 percent while those of its smaller competitor have plummeted around 70 percent.

The former has a market cap of $56.6 billion, while Credit Suisse closed Friday’s trading at $8 billion. In 2022, UBS made a profit of $7.6 billion while Credit Suisse posted a loss of $7.9 billion, erasing gains for the entire previous decade.

Swiss regulators told their U.S. and U.K. counterparts on Friday night that the merger of the two banks was “Plan A” to stem a loss of investor confidence in Credit Suisse, one of the people said. There is no guarantee that a deal will go through, which would need to be approved by UBS shareholders.

The fact that the SNB and Finma favor a Swiss solution has deterred other potential bidders. US investment giant BlackRock developed a competing approach, reviewed multiple options and spoke to other potential investors, the matter said.

A full merger of UBS and Credit Suisse would create one of the largest global systemically important financial institutions in Europe. UBS has total assets of $1.1 trillion and Credit Suisse $575 billion. However, a deal this big can prove too unwieldy to carry out.

The Financial Times has previously reported that other options are being considered, including breaking up Credit Suisse and raising funds via a public offering of its shielded Swiss division, with the wealth and asset management units going to UBS or other bidders sold.

UBS was on high alert for an emergency call from the Swiss government after investors became wary of Credit Suisse’s recent restructuring. Last year, CEO Ulrich Körner announced a plan to cut 9,000 jobs and spin off much of his investment bank into a new entity called First Boston, which will be headed by former board member Michael Klein.