Credit Suisse crisis nears conclusion as UBS discussions heat up

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UBS Group AG and Swiss officials are racing to put together a deal for the firm to take on battered rival Group AG later this week as they navigate thorny issues such as government backstops and the fate of the smaller firm’s investment bank. want to do

At the prodding of regulators, UBS has set aside its initial opposition to a deal and is exploring potential structures that could be executed quickly to prevent a deeper crisis of confidence, people with knowledge of the discussions said. Gave. UBS is asking the Swiss government to bear some legal costs and potential future damages in any deal, the people said, asking not to be identified describing private discussions.

Some have seen Swiss and US officials weigh in on the complex discussion over what would be the first combination of two global systemically important banks since the financial crisis. Still, talks are gathering pace and all sides are pushing for a quick resolution after a week in which customers pulled money and counterparties backed out of some dealings with Credit Suisse. The target is to announce a deal between the two banks by Sunday evening, the people said.

Under one possible scenario, the people said, the deal would involve UBS acquiring to gain its wealth and asset management units, while possibly divesting the investment banking division. The people said negotiations are still underway over the fate of Credit Suisse’s profitable Swiss Universal Bank, which is attractive to UBS but could leave the country’s domestic banking sector heavily concentrated.

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Representatives for UBS, and the Swiss finance ministry declined to comment.

A government-brokered deal will address a rout at that sent shock through the global financial system this week when panicked investors dumped their shares and bonds following the collapse of several smaller US lenders. A liquidity backstop by the Swiss central bank this week briefly halted the decline, but the market drama carries the risk that clients or counterparties will continue to flee, with potential implications for the wider industry.

Other financial companies, including Deutsche Bank AG, are monitoring the situation if lucrative assets are spun off in a UBS acquisition or other form of breakup, people briefed on the discussions said.

The discussions raise questions over the future of Credit Suisse’s bold plan to spin off its investment banking unit under the First Boston brand. The firm had been working to legally and operationally separate the business that would become CS First Boston, but those efforts are in the nascent stage. Chief Executive Officer Ulrich Korner said this week that the firm was looking at a possible initial public offering for the business in 2025.

is also reducing its trading business, but it still bears a substantial portion of the bank’s capital requirements.

“The investment bank is the bit most people want to spin,” said James Athey, investment director at Aberdeen. “It’s likely that there are a lot of these exposures. So it’s a challenge that needs to be addressed.”

Bloomberg reported earlier this week that UBS executives were resisting an orderly combination with its rival because they wanted to focus on their asset management-focused strategy and were reluctant to take risks related to Credit Suisse. has been unprofitable during the past decade and has incurred billions in legal damages.

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According to Bloomberg Intelligence, had 1.2 billion Swiss francs ($1.3 billion) in legal provisions at the end of 2022 and disclosed that it looked at potential losses adding another 1.2 billion francs, including multiple lawsuits and regulatory investigations. are due.

Credit Suisse’s market value has fallen from a 2007 peak of over 100 billion francs to about 7.4 billion Swiss francs. UBS has a market value of 60 billion francs. Clients pulled more than $100 billion in assets in the last three months of last year as concerns grew about its financial health, and outflows continued even after it tapped shareholders in raising 4 billion francs of capital.

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A fusion between the two Swiss banking giants, whose headquarters face each other in Zurich’s central Paradeplatz square, would be a landmark event for the country and global finance.

Both banks, counted by the Financial Stability Board, are globally systemically relevant, linked through frequent exchanges of executives from one side of the Paradeplatz to the other. Chairman Axel Lehmann and Chief Executive Officer Ulrich Körner are both former UBS decision-makers.

–With assistance from Bastian Beinrath.

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