It’s crunch time for Credit Suisse talks as UPS seeks Swiss guarantees

  • Talks to rescue Credit Suisse began on Sunday, with UBS seeking $6 billion from the Swiss government to cover costs.
  • UBS is under pressure from Swiss authorities to take over its local rival to bring the crisis under control, two people familiar with the matter said.
  • Regulators want a resolution before markets reopen on Monday, but one source warned that negotiations face significant hurdles.

Red pedestrian crossing signs outside a Credit Suisse Group AG bank branch in Basel, Switzerland, Tuesday, Oct. 25, 2022.

Stephen Wermuth | Bloomberg | Good pictures

Talks to rescue Credit Suisse began on Sunday, with UBS seeking $6 billion from the Swiss government to cover costs if it buys its struggling rival, a person familiar with the talks said.

Officials are scrambling to resolve a crisis of confidence at 167-year-old Credit Suisse bank, which has been caught in turmoil sparked by the collapse of US lenders Silicon Valley Bank and Signature Bank last week.

Although regulators want a resolution before markets reopen on Monday, a source warned that negotiations face significant hurdles, and a merger of the two banks could result in up to 10,000 job cuts.

The guarantees that UPS is seeking will cover the cost of closing parts of Credit Suisse and possible litigation fees, two of the people told Reuters.

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

A frantic weekend of negotiations follows a brutal week for banking stocks in Europe and the US as efforts to boost the sector. US President Joe Biden’s administration moved to freeze consumer deposits, while the Swiss central bank lent billions to Credit Suisse to shore up its shaky balance sheet.

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UBS was under pressure from Swiss authorities to take over its local rival to bring the crisis under control, two people familiar with the matter said. The plan will see Credit Suisse divest its Swiss business.

Switzerland is preparing to use emergency measures to fast-track the deal, the Financial Times reported, citing two people familiar with the situation.

U.S. officials are involved, working with their Swiss counterparts to help broker a deal, Bloomberg News reported, citing people familiar with the matter.

Berkshire Hathaway’s Warren Buffett has discussed the banking crisis with senior Biden administration officials, a source told Reuters.

The White House and the US Treasury declined to comment.

British Finance Minister Jeremy Hunt and Bank of England Governor Andrew Bailey remained in contact this weekend over the fate of Credit Suisse, a source familiar with the matter said. Spokesmen for the British Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.

Credit Suisse shares have lost a quarter of their value in the past week. The bank was forced to tap $54 billion in federal funds while trying to recover from a series of scandals that undermined investor and customer confidence.

It is one of the world’s largest wealth managers and is considered one of the 30 global systemically important banks – the failure of any one bank can ripple through the entire financial system.

There have been several reports of interest for Credit Suisse from other competitors. Bloomberg reported that Deutsche Bank was considering buying some of its assets, while US financial giant BlackRock denied reports that it was participating in a rival bid for the bank.

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The failure of the California-based Silicon Valley bank brought attention to how a relentless campaign of interest rate hikes by the U.S. Federal Reserve and other central banks — including the European Central Bank on Thursday — is squeezing the banking sector.

The collapses of SVB and Signature were among the biggest bank failures in US history, trailing the collapse of Washington Mutual during the 2008 global financial crisis.

First Citizens BancShares is evaluating an offer for SVB, and at least one is seriously considering an offer, Bloomberg News reported Saturday.

Banking stocks worldwide have suffered since SVB collapsed, with the S&P Banks Index falling 22%, its biggest two-week loss since the pandemic rocked markets in March 2020.

Big US banks threw a $30 billion lifeline to the smaller creditor First Republic. US banks have requested $153 billion in emergency liquidity from the Federal Reserve in recent days.

America’s Mid-Sized Bank Alliance has asked regulators to extend federal insurance for all deposits for the next two years, Bloomberg News reported Saturday, citing a letter from the alliance.

In Washington, the focus has shifted to greater 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 barring officials from failing banks.

Rapid and dramatic events could result in big banks getting bigger, smaller banks struggling to stay afloat and more regional lenders closing.

“People are actually moving their money around, and all these banks are going to be fundamentally different in three months, six months,” said Keith Noreika, vice president of Patomak Global Partners and a former Republican comptroller of the currency.

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