UBS is discussing scenarios in which the government would take on certain legal costs or other specific losses in any deal, said the people, asking not to be identified describing private discussions. The largest Swiss bank is exploring an acquisition of all or parts of its smaller rival at the urging of regulators to halt a crisis of confidence, Bloomberg reported earlier.
Under one likely scenario, the deal would involve UBS acquiring Credit Suisse to obtain its wealth and asset management units, while possibly divesting the investment banking division, the people said. Talks are still ongoing on the fate of Credit Suisse’s Swiss universal bank unit, which was the only one of the firm’s main divisions to make money last year, the people said.
Representatives at UBS, Credit Suisse declined to comment. The Swiss government and finance ministry did not immediately respond to a request for comment outside of business hours.
A government-brokered deal would address a rout in Credit Suisse that sent shock waves across the global financial system this week when panicked investors dumped its shares and bonds following the collapse of several smaller US lenders. A liquidity backstop by the Swiss central bank briefly arrested the declines, but the market drama carries the risk that clients or counterparties would continue fleeing, with potential ramifications for the broader industry.
UBS executives had been opposed to an arranged combination with its rival because they wanted to focus on their own wealth management-centric strategy and were reluctant to take on risks related to Credit Suisse, Bloomberg reported earlier this week. Credit Suisse has been unprofitable over the course of the last decade and has racked up billions in legal losses.
Credit Suisse had 1.2 billion Swiss francs in legal provisions at the end of 2022 and disclosed that it saw reasonably possible losses adding another 1.2 billion francs to that total, with several lawsuits and regulatory probes outstanding, according to Bloomberg Intelligence. A fusion between the two Swiss banking giants, whose headquarters face each other across Zurich’s central Paradeplatz square, would be an historic event for the nation and global finance. The goal is for an announcement of a deal between the two banks by Sunday evening at the latest, according to a person familiar with the matter, who also asked not to be identified discussing the talks. The situation, however, remains fluid and could change.