last day for UBS to swallow Credit Suisse and avoid a debacle

last day for UBS to swallow Credit Suisse and avoid a debacle

The agreement to buy Credit Suisse by UBS must be sealed this Sunday. A solution must be found before the stock market opens on Monday. Such a reconciliation is a complex matter that would normally take months.

Switzerland’s largest bank, UBS, pushed by the authorities, must absolutely finalize on Sunday the acquisition of its rival Credit Suisse to hope to avoid a debacle and a wave of contagious panic on the markets on Monday. Several members of the government met on Sunday morning at the Ministry of Finance in Bern, reports the daily 20 Minutes, to discuss this issue of capital importance for the Swiss economy. The President of the Confederation Alain Berset as well as other members of the Federal Council arrived at 7:30 a.m. The seven members of the government had already met the day before.

The agreement to buy Credit Suisse by UBS is to be sealed on Sunday during an extraordinary meeting of the government and the leaders of the two banking giants in the capital, the generally well-informed tabloid Blick said on Saturday. Such a reconciliation is a complex matter which normally should take months. UBS will only have had a few days.

Pressure from Switzerland’s partners

But the Swiss authorities have no choice but to push UBS to overcome its reluctance, due to the enormous pressure exerted by Switzerland’s major economic and financial partners who fear for their own financial center, says Blick. Bruno Le Maire, the French Minister of Finance made the message clear in Le Parisien: “We are now waiting for a definitive and structural solution to the problems of this bank“. The US Treasury had also indicated that it was following the case closely.

A solution must be found before the stock market opens at 9 a.m. on Monday. On Wednesday at the close, Credit Suisse was worth barely 7 billion Swiss francs (about as many euros) after a record drop in the action, a misery for a bank which – like UBS – is one of the 30 establishments in the world considered too important to let them fail.

But according to the Financial Times and Blick, the bank’s customers withdrew 10 billion Swiss francs in deposits in a single day late last week amid growing mistrust of the bank. It is also likely that to move quickly, bank leaders will be exempted from the obligation to consult shareholders, says the Financial Times.

Public guarantees

According to the Bloomberg agency, UBS demands that the public authorities bear legal costs and potential losses which can amount to billions of francs. The discussions stumble on the investment bank, indicates the financial agency, one of the scenarios under study being a takeover only of asset and wealth management with a sale of the investment bank. The discussions also concern the fate to be reserved for the Swiss branch of Credit Suisse, one of the profitable parts of the group which lost 7.3 billion Swiss francs last year and is still counting on losses.substantialin 2023. This branch brings together retail banking and loans to SMEs. One of the avenues considered by analysts is that of an IPO, which would also avoid massive layoffs in Switzerland because of duplication with UBS’s activities.

On Wednesday, the distrust of investors and partners has already pushed the Swiss Central Bank to lend 50 billion Swiss francs to restore oxygen to Credit Suisse and reassure the markets. However, the respite was only short-lived.

What about the Competition Commission?

Credit Suisse has just experienced two years marked by several scandals which revealed, by management’s own admission, “substantial weaknesses” in his “internal control“. The federal financial market supervisory authority (Finma) accused him of having “seriously breached its prudential obligationsin the bankruptcy of the financial company Greensill, which marked the beginning of his troubles. By contrast, UBS, which spent several years recovering from the shock of the 2008 financial crisis and a massive state bailout, is beginning to reap the rewards of its efforts, and according to several media outlets the bank had no intention before the weekend to embark on the Credit Suisse adventure. The Competition Commission could also raise eyebrows depending on the configuration of the takeover.

At the end of October, Credit Suisse had unveiled a vast restructuring plan providing for the elimination of 9,000 positions by 2025, or more than 17% of its workforce. The bank, which employed 52,000 people at the end of October, plans to separate investment banking from the rest of its activities to refocus on its most stable parts, including wealth management. But as Blick points out:Everything points to a Swiss solution this Sunday. And when the stock market opens on Monday Credit Suisse could be a thing of the past“.

TO HAVE ALSO – SVB bankruptcy: how far will the contagion go?

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