Several crisis meetings are scheduled for this weekend – both internal conversations at Credit Suisse, as well as discussions by banking sector regulators and even the Federal Council, given the size and importance of this entity for the Swiss economy.
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On Friday (17), the British newspaper Financial Times reported, based on several anonymous sources, that UBS, the largest Swiss bank, was in negotiations for the partial or total purchase of its competitor, with the approval of Swiss regulatory authorities. The Swiss Central Bank wants “a simple and straightforward solution before markets open on Monday,” one of these sources told the newspaper, acknowledging that “there is no guarantee” of success. The CH Media group said that “it will be decisive what the board of directors of the UBS do.”
But the current cost of banking is not exorbitant. After a week in the red that led to the intervention of the central bank with a liquidity line of US$53,7 billion, its market value was around US$8,7 billion at the close of Friday (17). 💸
An acquisition of this size is, however, complex, especially if there is urgency. And distrust towards the entity is high, despite the two Swiss regulators having highlighted, in the midst of the storm, that the bank meets “requirements in terms of capital and liquidity”. Proof of this – it is alleged – is the increase in prices of hedging instruments against default, or bank failures, or CDS, which stands for Credit Default Swaps.
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The entity experienced two years full of scandals, which revealed “substantial weaknesses” in its “internal control”, as the bank itself acknowledged this week. In 2022 the Credit Suisse suffered a net loss of 7,3 billion Swiss francs ($7,9 billion) in a context of mass withdrawals by its customers. And, for this year, it still predicts “substantial” losses. As for UBS, it took years to recover after facing catastrophe with the 2008 financial crisis, and it is not clear whether it wants to undergo further restructuring now that it is beginning to reap the rewards of its efforts. Another obstacle may be the Swiss competition authority, which may consider the merger of both entities problematic, given their dominant position in the market.
Analysts believe that the Swiss arm of Credit Suisse could be spun off, or entered separately on the Stock Exchange, to avoid mass layoffs and closures in Switzerland, given the duplication of activities between both groups. That way, UBS, or another suitor, would be left alone to manage the bank's funds and fortunes, the FT said.
Other options suggested by analysts are the sale of the brokerage activity, or, according to JP Morgan, “completely closing” the investment bank.
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At the end of October, the Credit Suisse presented a major restructuring plan that envisaged cutting 9 jobs by 2025. This represents 17% of its workforce, which stood at 52 people at the end of October.
(With AFP)
