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Swiss authorities are making unprecedented moves to force through UBS Group AG’s acquisition of Credit Suisse Group AG, with any form of nationalization at risk before markets open on Monday.
UBS is offering to buy Credit Suisse for about 1 billion francs ($1.1 billion), a deal the troubled Swiss firm is pushing back with support from its biggest shareholder, the Saudi National Bank, people with knowledge of the matter said. people said. But its negotiating leverage is limited because other options for its equity and bond investors could be even more painful.
Some said Swiss authorities are changing the law to avoid requiring shareholder votes on the deal. Some of the people, who asked not to be named on personal considerations, are considering a full or partial nationalization of Credit Suisse if the UBS deal falls through as time runs out.
As regulators and bankers race toward a deal aimed at calming markets, officials are grappling with the brutal choice between trampling on shareholder rights or risking an escalation of the crisis. A low-priced deal without a voice for the owners risks lawsuits and deters future international investors from investing in Switzerland. With no resolution in the next 12 hours, there is a risk of something worse.
Credit Suisse, which ended Friday with a market value of about 7.4 billion francs ($8 billion), believes UBS’s offer is too low and will hurt shareholders and employees, who have deferred the stock. Done, people said. Credit Suisse’s book value of equity ended last year at 45 billion francs.
A big question is whether Credit Suisse should still be viewed as the bank that regulators declared Wednesday night has enough capital and liquidity to deal with and deal with market panic. But Swiss regulators are worried about customers and counterparties turning away from the bank in the past week, and officials in the US and elsewhere are pushing for a definitive solution by Monday’s open to avoid any contagion fears on markets or other financial firms. have been
The UBS offer was communicated on Sunday with a price of 0.25 francs per share to be paid in stock. Credit Suisse closed down 8% at 1.86 francs on Friday.
Swiss officials are looking to broker a deal that will address the Credit Suisse debacle that sent shock waves through the global financial system last week when panicked investors dumped their shares and bonds following the collapse of several smaller US lenders. . The firm said after years of struggle that efforts to win back customers had not stopped outflows this year and the Saudi National Bank refused to take a larger stake.
A liquidity backstop by the Swiss central bank briefly halted the decline, but the market drama carries the risk that customers or counterparties will continue to flee, with potential implications for the wider industry.
UBS is trying to protect itself if it gives a large, complex rival less time to thoroughly examine its books. Bloomberg reported on Saturday that the government is seeking a backstop to cover some legal and other costs that may emerge in the future. The Financial Times reported that UBS also insisted on a significant adverse change that cancels the deal if its credit default rises by 100 basis points or more.
“There is clearly no pressure on UBS to buy a bunch of mismanaged risk exposures at market levels,” said Frederick Hildner, managing director at Confluent Capital. “Their bid of 0.25 CHF per share indicates that CS is in deep trouble and potentially worthless. Shares are likely to take a huge hit on Monday, unless other solutions come to the rescue tonight.
One of the people involved in the discussions said that if government money is pumped directly into Credit Suisse, Swiss authorities will likely need a bail-in of the debt and additional Tier 1 note holders to cover losses. Credit Suisse held approximately 15 billion francs in AT1 securities and 49 billion francs in bail-in debt instruments at the end of 2022.
Complex discussions have weighed on Swiss and US officials over what would be the first combination of two global systemically important banks since the financial crisis, according to people with knowledge of the matter. Talks picked up pace on Saturday, with all sides pressing for a solution that could be implemented quickly.
Credit Suisse will step up the process of cutting 9,000 jobs in an effort to save itself should the firm be taken over by UBS, according to people familiar with the discussions, with one person estimating the final toll to be a multiple of that number. Could Together the two lenders employed around 125,000 people at the end of last year, of which around 30% were in Switzerland.
–With assistance from Jan-Patrick Barnert and Blaise Robinson.
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