UBS is in discussions to take over all or part of Credit Suisse, with the boards of Switzerland’s two biggest lenders set to meet separately over the weekend to consider what would be Europe’s most consequential banking combination since the financial crisis, according to multiple people briefed on the talks.
The Swiss National Bank and regulator Finma are orchestrating the negotiations in an attempt to shore up confidence in the country’s banking sector, the people said. Their intervention comes days after the central bank was forced to provide an emergency SFr50bn ($54bn) credit line to Credit Suisse.
However, this failed to arrest a slide in its share price, which has fallen to record lows after its largest investor ruled out providing any more capital and its chair admitted that an exodus of wealth management clients had continued.
The share price performance of the Swiss lenders has diverged significantly in recent years. Over the past three years, UBS shares have gained about 120 per cent while those of its smaller rival have plunged roughly 70 per cent. The former has a market capitalisation of $56.6bn, while Credit Suisse closed on Friday with a value of $8bn.
In 2022, UBS generated $7.6bn of profit, whereas Credit Suisse made a $7.9bn loss, effectively wiping out the entire previous decade’s earnings.
Swiss regulators told their US and UK counterparts on Friday evening that merging the two banks was “plan A” to arrest a collapse in investor confidence in Credit Suisse, one of the people said.
A number of options beyond a full takeover are under discussion, another person said, adding that both sides are trying to evaluate regulatory constraints in different jurisdictions. This person added that UBS is also analysing the potential risks of a deal.
The Swiss central bank wants the lenders to agree on a simple and straightforward solution before markets open on Monday, one of the people said. There is no guarantee a deal, which would need to be approved by UBS shareholders, will be reached.
Credit Suisse and UBS declined to comment, as did the Swiss National Bank, the Federal Reserve and the Bank of England.
A full merger would create one of the biggest global 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 large deal may prove too unwieldy to execute. The Financial Times has previously reported that other options under consideration include breaking up Credit Suisse and raising funds via a public offering of its ringfenced Swiss division, with the wealth and asset management units being sold to UBS or other bidders.
UBS has been on high alert for an emergency rescue call from the Swiss government after investors grew wary of Credit Suisse’s most recent restructuring. Last year, chief executive Ulrich Körner announced a plan to cut 9,000 jobs and spin off much of its investment bank into a new entity called First Boston, run by former board member Michael Klein.
A potential takeover by its biggest rival would cap almost three years of scandal and chaos at 167-year-old Credit Suisse. Twin crises linked to specialist finance group Greensill Capital and family office Archegos — which both collapsed in the space of a few weeks in 2021 — resulted in billions of dollars of losses.
The lender was also fined for its role in the $2bn Mozambique “tuna bonds” scandal and was the first Swiss bank to be found guilty of a corporate crime after it was discovered to have laundered money for a Bulgarian cocaine cartel run by a former professional wrestler.
Meanwhile, Credit Suisse has suffered from significant management turnover. Former chief executive Tidjane Thiam resigned in 2020 after a spying scandal and neighbourhood dispute with a subordinate that scandalised Zurich.
A year later, António Horta-Osório was installed as chair. The former Lloyds Bank boss was brought in to clean up the Swiss lender’s culture. He was forced out in early 2022 for excessive use of the corporate jet and for breaching Covid-19 quarantine rules to watch the European Football Championship final and Wimbledon men’s tennis final in the same day.
Additional reporting by Robert Smith