Credit Suisse Group AG has announced plans to borrow $50 billion Swiss Francs from the Swiss National Bank, and UBS Group AG is considering purchasing the banking giant. UBS is requesting that the Swiss government provide a backstop to protect against any potential losses in the deal.
Credit Suisse Struggles Lead to UBS Considering Takeover Amidst Banking Industry Challenges
Banking deals have been occurring behind the scenes in the global financial system. Earlier this week, it was reported that UBS Group AG is in discussions to acquire all or part of Credit Suisse Group AG. Sources close to the talks say that the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank are involved in the UBS and Credit Suisse discussions. Regulators from Switzerland are calling the merger “Plan A” as it is designed to increase investor and depositor confidence. On Thursday, Credit Suisse stated it had borrowed 50 billion Swiss from the Swiss National Bank to boost liquidity.
On Saturday, Bloomberg reported that the merger talks have intensified. UBS is looking for the government of Switzerland to provide protection from any losses if it acquires Credit Suisse. Sources familiar with the matter, who asked to remain anonymous, stated that UBS is looking at acquiring the wealth and asset management units of Credit Suisse. However, the bank wants a deal backed by the government that includes a backstop.
Prior to the Swiss government stepping in, UBS executives were uncertain about purchasing the competitor and taking on the risks. Reuters reported that Credit Suisse’s chief financial officer Dixit Joshi and his team assembled over the weekend to explore the bank’s options. Aside from UBS, other rivals have reportedly shown interest in Credit Suisse. This is not the only indication that something is wrong with the Swiss bank, as Credit Suisse and Deutsche Bank faced distressed valuations in October of 2019. At the time, the banking giant’s credit default insurance was near 2008 levels.
The current issues for Credit Suisse were intensified after the failures of Silvergate Bank, Silicon Valley Bank, and Signature Bank. Additionally, 11 lenders injected $30 billion into First Republic Bank last week to stop the bank’s collapse. Over the past seven days, Credit Suisse’s shares have dropped about 25%. Year-to-date, Credit Suisse’s stock has declined by 35.58%.
Should the Swiss government provide a backstop to protect UBS’s acquisition of Credit Suisse? Let us know your thoughts on this topic in the comments section.
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