UBS offers $1 billion to buy Credit Suisse

Discussions continue and the contours of the deal could still change as UBS and Swiss regulators discuss the details of the plan and the extent to which Swiss authorities would provide guarantees or backing.

Authorities are racing to consummate the deal before markets open in Asia, the people said. Regulators have offered to waive the requirement for customary shareholder votes to speed up the sale, one of the people said.

One issue in the discussions is what cost savings UBS could generate for Swiss authorities through moves such as job cuts, a key factor in how much UBS might pay for the deal, the people said.

UBS would only retain parts of Credit Suisse’s investment bank that fill gaps geographically or in certain product areas where UBS does not have a presence.

The price would be a substantial discount to Credit Suisse’s market value, which closed Friday at about $8 billion. UBS would be shouldering large unknown costs and integration complexities. Some wealthy clients hold cash at both banks and, after a merger, may decide to take some of their cash to third parties for diversification purposes.

The size of UBS’ bid was previously reported by the Financial Times.

Credit Suisse’s AT1 bonds are expected to be substantially depreciated, easing some of the debt burden that UBS would take on, according to some of the people familiar with the matter.

The end of Credit Suisse’s nearly 167-year run would mark one of the most significant moments in the banking world since the 2008 financial crisis. Valley Bank.

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 urgency on the part of regulators was prompted by an increasingly dire outlook at Credit Suisse, according to one of the people. The bank faced outflows of up to $10 billion a day last week, this person said. Regulators feared the bank would become insolvent within the next week if not resolved, and were worried that the crumbling confidence could spread to other banks.

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 wealth management 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 Credit Suisse’s $8 billion, according to FactSet. It made a net profit of $7.6 billion in 2022, while Credit Suisse posted a net loss of $7.9 billion.

Credit Suisse’s local retail bank, a sticking point in the talks, could be worth $10 billion alone, according to analysts. Combining it directly with UBS would create a domestic banking behemoth with around 30% of the country’s domestic loans and deposits.

Credit Suisse’s large legal accounts are expected to be backed by the Swiss government and transferred to a separate entity, according to one of the people.

The bank’s legal costs have skyrocketed in recent years due to banker misconduct and regulatory settlements. In February, it estimated that it could have to pay about another $1.3 billion not accounted for. She also faces other litigation, such as over investment funds she managed with bankrupt financial partner Greensill Capital.

Another question is what to do with Credit Suisse’s investment bank. Credit Suisse was in the early stages of spinning off parts of its investment bank under the name CS First Boston, led by former Credit Suisse board member Michael Klein. She agreed to pay $175 million to buy her company, the Klein Group.

Outside investors have begun tightening their prospective financial commitments to the CS First Boston development in recent weeks, according to people familiar with the matter. Swiss regulators are concerned that the plan is too complicated to be part of the merger, and some potential investors in CS First Boston are unwilling to commit to any commitments, the people said.

Both Credit Suisse and UBS are considered systemically important in Switzerland and globally, and a combination may be subject to additional oversight and capital charges. Credit Suisse had around 50,000 employees at the end of 2022, including over 16,000 in Switzerland. It has investment banking units in cities such as New York, London and Singapore, an operations center near Raleigh, North Carolina, and employs thousands of people in technology in India and Poland. UBS has around 74,000 employees worldwide.

Any combination would likely result in substantial job losses on top of the more than 9,000 positions that Credit Suisse had already pledged to eliminate as part of its turnaround plan.

Credit Suisse has billions of dollars in deferred employee compensation and potential legal settlements, according to its financial statements. In January, it set up a capital release unit that, according to it, would take years to function.

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.

The impact of a deal on broader financial markets will depend on the details and how much support, if any, regulators provide. Credit Suisse has more than $160 billion in long-term debt, some of which is classified as bailout instruments, which could be written off if regulators force the bank into restructuring.

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.