by Swiss leaders are holding a news conference on Sunday night following several reports that banking giant UBS is in talks to acquire its smaller rival, Credit Suisse, in an effort to avoid further turmoil in the global banking market.
The Federal Council, the seven-member governing body that includes Swiss President Alain Berset, is expected to announce that UBS is acquiring Credit Suisse in a possible deal brokered by the Swiss government.
Credit Suisse is designated by the Financial Stability Board, the international body that monitors the global financial system, as one of the banks of global systemic importance. That means regulators believe its runaway failure would lead to ripples across the financial system, not unlike the collapse of Lehman Brothers 15 years ago.
Sunday’s press conference follows the collapse of two major US banks last week, which spurred a wide-ranging and frantic US government response to prevent further bank panics. Still, global financial markets have been tense since Credit Suisse’s share price began to plummet this week.
Credit Suisse, 167, has already received a loan of $50 billion (54 million Swiss francs) from the Swiss National Bank, which briefly sent the bank’s share price soaring. However, the measure does not seem to be enough to contain an outflow of deposits, according to press reports.
Still, many of Credit Suisse’s problems are unique and do not overlap with the weaknesses that brought down Silicon Valley Bank and Signature Bank, whose failures led to a significant rescue effort by the Federal Deposit Insurance Corporation and the Federal Reserve. As a result, its fall does not necessarily signal the beginning of a financial crisis similar to the one that occurred in 2008.
The deal caps a highly volatile week for Credit Suisse, particularly on Wednesday when its shares fell to a record low after its biggest investor, Saudi National Bank, said it would not invest more money in the bank to avoid tripping over regulations. that would kick in if its stake increased by about 10%.
On Friday, the shares fell 8% to close at 1.86 francs ($2) on the Swiss bourse. The stock suffered a long slump: it traded at over 80 francs in 2007.
Its current troubles began after Credit Suisse said on Tuesday that managers had identified “material weaknesses” in the bank’s internal controls over financial reporting late last year. This sparked fears that Credit Suisse would be the next domino to fall.
Though smaller than its Swiss rival UBS, Credit Suisse still wields considerable clout, with $1.4 trillion in assets under management. The firm has leading trading desks around the world, serves the rich and wealthy through its wealth management business, and is a leading advisor to global companies on mergers and acquisitions. Notably, Credit Suisse did not need government assistance in 2008 during the financial crisis, while UBS did.
Despite the banking turmoil, the European Central Bank on Thursday approved a large half-point hike in interest rates to try to curb stubbornly high inflation, saying Europe’s banking sector is “resilient” with strong finances.
ECB President Christine Lagarde said banks “are in a completely different position than they were in 2008” during the financial crisis, partly because of tighter government regulation.
The Swiss bank has been pushing to raise money from investors and launch a new strategy to overcome a series of problems, including bad bets on hedge funds, repeated changes in its top management and a spying scandal involving UBS.
