Swiss regulators have reportedly helped to hammer out a deal for UBS Group AG to buy rival Credit Suisse AG — an all-share agreement valued at $1 billion that’s expected to be finalized by Sunday evening.
That’s according to a Sunday report in the Financial Times, which laid out the offer price as 0.25 Swiss francs a share, well below Credit Suisse’s
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Friday closing price of 1.86 Swiss francs. Such a deal would end days of speculation about what would happen to the embattled bank.
One possibility is for UBS to buy Credit Suisse and spin off its Swiss operations to an independent entity, The Wall Street Journal reported on Sunday. UBS would keep Credit Suisse’s wealth management division, the report added, though talks are still in flux.
Credit Suisse stock has lost 25% over the past week — its worst since the 2008 great financial crisis — and trades 71% below where it was a year ago. American depositary receipts of Credit Suisse gained 7% late Friday, and have lost 24% on the week, versus a 1.45 gain for the S&P 500
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The possibility of a deal comes days after the Swiss National Bank was forced to provide an emergency credit line of 50 billion Swiss francs, ($54 billion), to Credit Suisse last week amid stress on the global banking sector that began with the failure of three U.S. banks.
Shares of Credit Suisse reached record lows in recent sessions after its biggest investor said it would not provided any further capital and the lender’s chair admitted that wealth management clients continued to leave the investment bank.
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has also attached a clause that allows for the deal to be voided if its credit defaults surge by 100 basis points or more, the report said, citing four people close to the situation.
In a rush to get a deal finalized before markets open in Monday, Swiss regulators are attempting to change a law that allows for a six-week consultation period with shareholders. Many stockholders are expected to be left with losses, given the price tag on the deal.
Sources told the FT that U.S. authorities have also been involved in talks for two of Switzerland’s biggest banks to combine, seen as the only means of saving Credit Suisse. Regulators from the U.K. were also involved. The deal’s price tag also doesn’t include any extra provisions from the Swiss National Bank to push it through.
UBS is ultimately planning for Credit Suisse to represent a third of its business. But the union would still create one of the biggest global systemically important financial institutions in Europe — UBS has $1.1 trillion total assets on its balance sheet and Credit Suisse has $575 billion.
Neither bank, nor the Swiss National Bank nor market regulator Finma would comment to the Financial Times.
Credit Suisse shareholders have endured a series of scandals that has resulted in five consecutive losing quarters, and outflows of about $100 billion from its wealthy clients in the fourth quarter.The lender admitted to material financial control problems in its annual report last week.
Investors will now be waiting to see if a deal for Credit Suisse can calm markets and remove at least one layer of global stress for now. U.S. Federal authorities on Thursday organized major banks to infuse $30 billion into First Republic Bank
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and stave off a fourth banking collapse, following the failures of Silicon Valley Bank, Signature Bank and Silvergate Bank over the past week .
Read: From SVB’s sudden collapse to Credit Suisse’s fallout: 8 charts show turbulence in financial markets
Still ahead for investors this week is a Federal Reserve meeting. Markets are bracing for the Tuesday-Wednesday policy meeting. In fed funds futures traders now see a 75.3% chance of a 25 basis point rate hike on Wednesday, owing to inflation worries.
Read: What it may take to calm banking sector jitters: time, and a Fed rate hike.
Credit: marketwatch.com