UBS is in talks to acquire all or part of Credit Suisse, a move that is being brokered by the Swiss National Bank and regulator FINMA in an attempt to build confidence in Switzerland’s banking sector.
According to the Financial Times, citing sources close to the matter, the boards of the country’s two biggest banks are set to meet over the weekend to consider the option.
Swiss regulators told US and UK counterparts on Friday evening that a merger between the two Swiss giants is “plan A” to salvage investor confidence in Credit Suisse which has seen its market cap collapse to $6.9bn, the report said.
Several other options beyond a UBS takeover are also under discussion, one source said, with UBS analysing the potential risks of a deal with its rival.
The Swiss central bank wants the two banks to agree on a simple solution before markets open on Monday, another source said, but there is no guarantee of a deal which needs to be approved by UBS shareholders.
The news comes just a day after Credit Suisse was forced to borrow up to $54bn from the Swiss National Bank in a bid to “pre-emptively strengthen its liquidity”.
However, Reuters reported on Friday that at least four banking giants including Société Générale and Deutsche Bank have imposed restrictions on new trades with Credit Suisse.
Credit Suisse is the latest firm to be caught up in the banking crisis which saw the collapse of Silicon Valley Bank (SVB) last week after management parked funds in longer-duration US Treasuries and mortgage-backed securities without hedging the duration risk.
The Swiss bank has seen its share price plummet 75% over the past year, as at 17 March.
Despite troubles in the banking sector, the European Central Bank (ECB) hiked interest rates by 50 basis points (bps) on Thursday in response to high levels of inflation.
“Credit Suisse appears to be teetering on the edge, and the ramifications its collapse could have on the European banking sector are profound, but the ECB continues to see inflation as the bigger risk to tackle,” Richard Carter, head of fixed interest research at Quilter Cheviot, said.
“If inflation fails to come down swiftly this year, the bank could find itself with two competing forces – a struggling financial system that will impact on economic growth versus sticky inflation that shows no sign of returning to target.”
From an ETF perspective, a UBS acquisition of Credit Suisse would create an ETF business with €82.5bn assets under management (AUM), the fourth largest in Europe ahead of Vanguard, according to data from Bloomberg Intelligence.