(CTN News) – With the specter of another turbulent week in global finance looming over Credit Suisse, the company has two days to reassure investors.
This weekend, Zurich-based lender was holding crisis talks and urgent meetings with Swiss regulators.
FT reported that Switzerland’s largest bank, UBS, is negotiating to buy Credit Suisse, with Swiss regulators’ approval.
Despite acknowledging there’s “no guarantee” of a deal, the Swiss National Bank (SNB) wants lenders to come to a simple and straightforward agreement before markets open on Monday.
According to Bloomberg, UBS would need public guarantees to cover legal costs and potential losses.
The asset management giant BlackRock was also reported to be eyeing the bank, but it strongly denied AFP’s report.
A BlackRock spokesperson told AFP the company has no interest in buying Credit Suisse.
Credit Suisse was worth just over $8.7 billion on Friday evening after a turbulent week on Wall Street forced the SNB to step in with a $53.7 billion lifeline.
There’s a lot to consider with an acquisition of this size.
Violations that are serious
In spite of FINMA and the SNB saying Credit Suisse meets capital and liquidity requirements for systemically important banks, mistrust still exists.
The management of Credit Suisse admitted to “material weaknesses” in their “internal control over financial reporting” in the past two years.
With respect to Lex Greensill and his companies, FINMA accused the bank of having “seriously breached its supervisory obligations.”
As a result of massive withdrawals of money from its customers, the bank suffered a $7.9 billion net loss in 2022. This year, the company still expects to suffer a “substantial” loss pre-tax.
In a market note this week, IG analyst Chris Beauchamp commented, “This is a bank that can’t seem to manage its finances.”
One of 30 global banks considered to be of global importance to the international banking system, Swiss second-largest bank might face a more drastic restructuring, the closing of its investment banking division, or even a takeover by a rival.
After two US banks collapsed on Wednesday, Credit Suisse’s biggest shareholder said it would “absolutely not” increase its stake.
In the event of a central bank lifeline, some analysts question whether a credit crisis could be handled in an orderly manner, with regulators taking charge of Credit Suisse’s dismantling.
The CET1 ratio of Credit Suisse, which compares capital to risk-weighted assets, stood at 14.1 percent in 2022, slightly below that of HSBC, but higher than that of BNP Paribas.
Combination with UBS
The SNB’s intervention has allowed it to accumulate a huge amount of liquidity.
“The status quo isn’t an option anymore”, according to JPMorgan analysts, who considered the possibility of UBS taking over the bank.
It frequently comes up that Switzerland’s biggest banks should merge, but such a merger is generally dismissed due to competition concerns as well as weakening stability of the Swiss financial system as a whole.
Axiom Alternative Investments’ David Benamou, chief investment officer, explained that the question arises because many candidates might be interested.
However, even if forced to choose (this option) by the authorities, Credit Suisse’s management would do so only if no other solution is available.
In October, the bank laid out its restructuring plan; UBS has been working on its own issues for years.
US bank collapses spiked Credit Suisse’s credit default swaps.
Credit Suisse gained “precious time” with the SNB’s help, Morningstar analyst Johann Scholtz says.
To reassure funders, clients, and shareholders, the current restructuring is “too complex”.