UBS Enters Talks to Acquire Credit Suisse for Over $2 Billion Amidst Bank’s Ongoing Woes

Swiss banking giant UBS is in talks to buy embattled rival Credit Suisse for “substantially” more than 1 billion Swiss francs, according to sources cited by CNBC’s David Faber. The Financial Times reported that UBS has agreed to buy the bank for more than $2 billion, marking a substantial increase from the initial $1 billion offer the FT reported earlier on Sunday. Faber said the price of the deal increased throughout the day’s negotiations.

Credit Suisse had reportedly balked at UBS’ initial offer, arguing it was too low and would hurt shareholders and employees, according to people with knowledge of the matter who spoke to Bloomberg. Swiss authorities had also reportedly been considering full or partial nationalization of the bank as an alternative to the UBS takeover, according to a Sunday Bloomberg report.

The UBS deal is being orchestrated quickly, so the Swiss are preparing for the case that it falls through, Bloomberg said, citing people with knowledge of the matter. The country is reportedly considering whether it would take over the bank completely or hold a significant equity stake.

The UBS offer comes after Credit Suisse shares logged their worst weekly decline since the onset of the coronavirus pandemic, despite an announcement that it would access a loan of up to 50 billion Swiss francs ($54 billion) from the Swiss central bank. It had already been battling a string of losses and scandals, and last week sentiment was rocked again with the collapse of Silicon Valley Bank and the shuttering of Signature Bank in the U.S., sending shares sliding.

Credit Suisse’s scale and potential impact on the global economy are much greater than the U.S. banks‘. The Swiss bank’s balance sheet is around twice the size of Lehman Brothers when it collapsed, at around 530 billion Swiss francs as of end-2022. It is also far more globally interconnected, with multiple international subsidiaries – making orderly management of Credit Suisse’s situation even more important.

Credit Suisse lost around 38% of its deposits in the fourth quarter of 2022 and revealed in its delayed annual report early last week that outflows have still yet to reverse. It reported a full-year net loss of 7.3 billion Swiss francs for 2022 and expects a further “substantial” loss in 2023. The bank had previously announced a massive strategic overhaul in a bid to address these chronic issues, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.

The Swiss government held a news conference on Sunday to address the potential deal. Credit Suisse and UBS declined to comment on the reports when contacted by CNBC.

This news comes as a surprise to the global banking industry, and the deal is set to have significant implications for both UBS and Credit Suisse, as well as the Swiss financial sector as a whole. The Swiss government has a vested interest in ensuring the stability of the country’s banking system, and any move towards nationalization would have major ramifications.

UBS, on the other hand, has been looking to expand its presence in the Swiss market, and the acquisition of Credit Suisse would give it a major boost. The deal would create a dominant player in the Swiss banking sector, with a combined balance sheet of over 1 trillion Swiss francs.

The takeover bid also highlights the challenges facing large banks in the current economic climate. The ongoing COVID-19 pandemic, coupled with low-interest rates and increased regulatory scrutiny, has put significant pressure on banks’ profitability and ability to compete.

For Credit Suisse, the potential sale to UBS could offer a lifeline as it seeks to navigate through a difficult period in its history. However, the sale would also mark the end of an era for the bank, which has been a major player in the Swiss.