Credit Suisse fate can be decided within the upcoming few hours
Credit Suisse, Switzerland’s second-largest bank, must find ways to reassure investors at all costs before Monday morning, as big rival UBS looks set to bail it out.
There was silence on Saturday, whether on the part of Credit Suisse or on the part of UBS, the first Swiss bank to be presented as the most likely buyer in the eyes of the central bank and the market watchdog (Finma).
The Swiss market opens at 8 am GMT Monday, and if investors aren’t convinced that a good solution has been reached for an institution that is considered a weak link, it may witness a worse day than Wednesday, March 15th.
On Wednesday, Credit Suisse shares reached a historic low of 1.55 Swiss francs (1.56 Euros), and the bank’s market value amounted to only seven billion Swiss francs, which is a low number for a bank classified like UBS among the thirty most important banks in the world.
The Financial Times reported Friday evening that UBS was in talks to take over its rival in whole or in part, and indicated a deal could be reached as of Saturday evening.
The Financial Times quoted two unnamed sources as saying that Credit Suisse clients withdrew 10 billion francs of deposits in one day late last week.
The Swiss Central Bank said that it wants lenders to agree on a simple and direct solution before the opening of financial markets on Monday, which indicated its admission at the same time that it wasn’t certain of reaching an agreement.
For its part, Bloomberg quoted anonymous sources as saying that UPS is asking the state to bear legal costs and potential losses.
The financial agency indicated that one of the scenarios under study is the acquisition of Credit Suisse to retain only asset and wealth management and resale of the investment section of the bank.
Discussions continue about the fate of the Swiss branch of Credit Suisse, as it is making profits, unlike the rest of the group, which lost 7.3 billion Swiss francs last year and expects significant losses this year.
This branch combines retail banking and loans to small and medium enterprises.
Another scenario mentioned by analysts in recent days is its listing on the stock exchange, which may avoid mass layoffs in Switzerland.
And with the decline in investor and partner confidence, the central bank was forced on Wednesday to lend 50 billion Swiss francs (50.4 billion Euros) to revive the Zurich-based institution and reassure the markets.
But the effect of that measure is short-lived, whereas an acquisition of this size is very complex, especially if it’s done in haste.
Credit Suisse has gone through two years with many scandals that, with management’s admission, revealed fundamental weaknesses in its internal controls.
The market watchdog accused him of grossly breaching his prudential obligations over the Greensill Financial bankruptcy, which marked the beginning of his setbacks.
As for UBS, it spent several years recovering from the shock of the 2008 financial crisis, and began reaping the fruits of its efforts.
Its CEO, Ralph Hammers, stressed on Wednesday that he wanted to focus on the bank’s strategy and refused to answer a hypothetical question about the possibility of acquiring Credit Suisse.
In all cases, the Competition Committee may object to the acquisition.
At the end of October, Credit Suisse unveiled a wide-ranging restructuring plan that includes cutting 9,000 jobs by 2025, more than 17% of its workforce.
The bank, which employed 52,000 people at the end of October, intends to refocus on its more stable activities and radically transform its commercial banking activities.
The plan is to consolidate much of his loss-making investment banking business under the First Boston brand and then outsource it.
But Morningstar analysts consider the restructuring too complex and not comprehensive enough.
Analysts at the US bank JPMorgan are studying a radical option, which requires Credit Suisse to close its investment banking activities completely.