by UBS AG UBS Group -5.50%
is in talks to take over parts or all of Credit Suisse Group AG,
CS -6.94%
which could involve government support, part of an urgent effort by Swiss and global authorities to restore confidence in the banking system, people familiar with the situation said.
Credit Suisse took on a liquidity lifeline of more than $50 billion from the Swiss National Bank this week after concerns deepened over its outlook. The move did not do enough to stop Credit Suisse shares from falling or stem the loss of bank deposits, forcing the central bank and Switzerland’s top financial regulator to orchestrate talks with Credit Suisse’s biggest rival, UBS.
The banks discussed a range of scenarios, including ones that end with UBS taking over all or part of Credit Suisse, according to people familiar with the situation.
UBS has long been seen as part of any state-backed solution for Credit Suisse, which has a balance sheet roughly half the size of UBS’s $1.1 trillion total assets. Any large-scale acquisition would give UBS valuable businesses within Credit Suisse, such as wealthy clients in Asia and the Middle East, but could come with less desirable units, such as Credit Suisse’s troubled investment bank. It could also derail UBS’s existing strategy and the stability perceived by investors.
UBS has a market capitalization of approximately $65 billion, versus $8 billion for Credit Suisse, according to FactSet..
Both banks are considered systemically important in Switzerland and globally, and a combination may be subject to additional supervision and capital charges.
Swiss authorities are expected to reach at least a tough deal before the market opens on Monday. A spokesman for financial regulator Finma and the SNB declined to comment. A finance ministry spokeswoman said she does not comment on rumours.
The talks, which were previously reported by the Financial Times, may not result in a transaction between Credit Suisse and UBS. They are the top two banks by assets in Switzerland, serving local savers and businesses and wealthy customers worldwide. Both have Wall Street investment banks and big asset management arms.
UBS may not be the only player in the mix. Other financial institutions are looking into the situation to see if they can buy shares of Credit Suisse or support bids, people familiar with those efforts said.
Big asset managers have long coveted some of the bank’s investment businesses, including its European real estate and US asset management arms. Credit Suisse executives repeatedly rejected these offers, arguing that asset management was an essential part of their operations.
Credit Suisse’s slide towards state assistance came after other banks and big investors pulled out of doing business with the Swiss lender last week. Other investment firms stopped dealing with the bank in the autumn as its years-old problems worsened, people familiar with the matter said.
Analysts have been concerned about wealthy clients pulling out of their money. Executives at other banks said they had received input from Credit Suisse clients in the past week.
Using UBS to save Credit Suisse marks a turnaround from nearly 15 years ago, when Switzerland bailed out UBS after it was stuck with billions in toxic assets in its US businesses. Credit Suisse refused state aid at the time and came out of the crisis stronger.
It has been hobbled by tighter financial regulations and costly deals with regulators. The bank went through a series of restructurings. Credit Suisse’s most recent management team, some who previously worked at UBS, have appealed for longer to prove they could turn things around.
—Patricia Kowsmann contributed to this article.
Write to Justin Baer at justin.baer@wsj.com, Margot Patrick at margot.patrick@wsj.com, and Ben Dummett at ben.dummett@wsj.com
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