By Stefania Spezzati, Oliver Hirt and John O’Donnell
(Reuters) – Talks over a Credit Suisse rescue came to an end on Sunday when UBS AG sought $6 billion from the Swiss government to cover costs if it were to buy its struggling rival, a person with knowledge of the talks said.
Authorities are scrambling to resolve a crisis of confidence in 167-year-old Credit Suisse, the most important bank globally, caught in the turmoil sparked by the collapse of US lenders Silicon Valley Bank and Signature Bank last week.
While regulators want a resolution before markets reopen on Monday, one source has warned that talks are encountering significant hurdles and 10,000 jobs could have to be cut if the two banks merge.
The guarantees UBS is seeking would cover the cost of liquidating parts of Credit Suisse and possible litigation charges, two people told Reuters.
Credit Suisse, UBS and the Swiss government declined to comment.
The frantic weekend trading follows a brutal week for bank stocks and efforts in Europe and the US to bolster the sector. US President Joe Biden’s administration moved to protect consumer deposits, while the Swiss central bank lent billions to Credit Suisse to stabilize its shaky balance sheet.
UBS was under pressure from Swiss authorities to take control of its local rival and bring the crisis under control, said two people with knowledge of the matter. The plan could result in the spin-off of Credit Suisse’s Swiss business.
Switzerland is preparing to use emergency measures to speed up the deal, the Financial Times reported, citing two people familiar with the situation.
US officials are involved, working with their Swiss counterparts to help broker a deal, Bloomberg News reported, also citing people familiar with the matter.
Berkshire Hathaway’s Warren Buffett held discussions with senior Biden administration officials about the banking crisis, a source told Reuters.
The White House and US Treasury declined to comment.
British Finance Minister Jeremy Hunt and Bank of England Governor Andrew Bailey are also in regular contact this weekend over the fate of Credit Suisse, a source familiar with the matter said. Spokespersons for the British Treasury and the Bank of England’s Prudential Regulation Authority, which oversees creditors, declined to comment.
Credit Suisse shares have lost a quarter of their value in the last week. The bank has been forced to draw on $54 billion in central bank funding as it tries to recover from a series of scandals that have undermined investor and customer confidence.
He is among the world’s top wealth managers and is considered one of the top 30 systemically important global banks – the failure of any one of them would affect the entire financial system.
There have been several reports of interest for Credit Suisse from other rivals. Bloomberg reported that Deutsche Bank was considering buying some of its assets, while US financial giant BlackRock denied a report that it was participating in a rival bid for the bank.
INTEREST RATE RISK
The bankruptcy of the California-based Bank of Silicon Valley brought to light how a relentless campaign to raise interest rates by the US Federal Reserve and other central banks – including the European Central Bank on Thursday – was putting pressure on the banking sector.
The SVB and Signature collapses are the largest bank failures in US history, behind the demise of Washington Mutual during the global financial crisis in 2008.
Bank stocks around the world have taken a hit since the SVB collapse, with the S&P Banks Index down 22%, its biggest two-week loss since the pandemic rocked markets in March 2020.
Big US banks have launched a $30 billion lifeline for smaller lender First Republic. US banks have sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days.
The Mid-Size Bank Coalition of America has asked regulators to extend federal insurance to all deposits for the next two years, Bloomberg News reported Saturday, citing a letter from the coalition.
In Washington, the focus has turned to greater oversight to ensure that banks and their executives are held accountable.
Biden has asked Congress to give regulators greater power over the industry, including imposing higher fines, recovering funds and banning employees of failed banks.
Rapid and dramatic events could mean big banks get bigger, smaller banks can struggle to keep up, and more regional lenders can close.
“People are really moving their money around, all these banks are going to look fundamentally different in three months, six months,” said Keith Noreika, vice president of Patomak Global Partners and a former Republican currency controller.
(Reporting by Stefania Spezzati, Oliver Hirt and John O’Donnell; Additional reporting by Reuters Offices; Writing by Lincoln Feast; Editing by William Mallard)