UBS Nears Deal to Take Over Credit Suisse

Credit Suisse took a more-than-$50 billion Swiss National Bank liquidity lifeline this week after concerns deepened about its prospects. The action didn’t do enough to stop the slide in Credit Suisse’s shares or stem the loss of bank deposits, compelling the central bank and Switzerland’s top financial regulator to orchestrate talks with Credit Suisse’s larger 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 as much as $10 billion in outflows a day last week, this person said. The regulators feared that the bank would become insolvent next week if not dealt with, and they were concerned crumbling confidence could spread to other banks.

The banks have discussed a number of scenarios, including those that end with UBS taking over all or parts of Credit Suisse, according to the people familiar with the situation. UBS would likely shrink Credit Suisse’s investment-banking arm, which was in the process of being spun off.

An end to Credit Suisse’s nearly 167-year run would mark one of the most significant moments in the banking world since the 2008 financial crisis. It also would represent a new global dimension of damage from a banking storm started with the sudden collapse earlier this month of Silicon Valley Bank.

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 in total assets. Any full-scale takeover would give UBS prized businesses within Credit Suisse, such as wealth-management clients in Asia and the Middle East, but might come with less desirable units such as Credit Suisse’s troubled investment bank. It also could derail UBS’s existing strategy and perceived stability with investors.

UBS has a market capitalization of roughly $65 billion, versus Credit Suisse’s $8 billion, according to

FactSet.

It made a $7.6 billion net profit in 2022 while Credit Suisse posted a $7.9 billion net loss.

Credit Suisse’s local retail bank, a sticking point in the talks, could on its own be worth $10 billion, 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. 

The talks are also focused on how much aid regulators or the Swiss government will provide.

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

The bank’s legal costs spiraled in recent years from banker misconduct and regulatory settlements. It estimated in February that it could have to pay up to around another $1.3 billion not accounted for. It also faces other litigation, such as around investment funds it ran with collapsed financing partner Greensill Capital.

Another issue is what to do with Credit Suisse’s hobbled investment bank. Credit Suisse was in the early stages of spinning out parts of its investment bank under the name CS First Boston, led by former Credit Suisse board member

Michael Klein.

It agreed to pay $175 million to buy his company, the Klein Group.

Outside investors had started firming up their likely financial commitments to the CS First Boston venture in recent weeks, according to people familiar with the matter. Swiss regulators are concerned that the plan is too complicated to be a part of the merger, and some potential investors in CS First Boston aren’t willing to rush into any commitments, the people said.

Both Credit Suisse and UBS are deemed systemically important in Switzerland and globally, and a combination could be subject to additional oversight and capital charges. Credit Suisse had around 50,000 employees at the end of 2022, including more than 16,000 in Switzerland. It has investment-banking units in cities including New York, London and Singapore, an operations hub near Raleigh, N.C., and employs thousands in technology in India and Poland. UBS has around 74,000 employees globally.

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

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

Swiss authorities are expected to reach at least a rough deal before Monday’s market open. A spokesman for financial regulator Finma and the SNB declined to comment. A finance ministry spokeswoman said it doesn’t comment on rumors.

The talks, which were reported earlier by the Financial Times, might not result in a transaction between Credit Suisse and UBS. They are the top two banks by assets in Switzerland, serving savers and businesses there, and rich customers across the globe. Both have Wall Street investment banks and large asset-management arms. 

UBS might not be the only player in the mix, but people familiar with the matter said Swiss regulators preferred a domestic solution. Other financial institutions were examining the situation to see if they could buy parts of Credit Suisse or back bids, people familiar with those efforts said. 

Large asset managers have long coveted some of the bank’s investing businesses, including its European real estate and U.S. asset-management arms. Credit Suisse’s executives have repeatedly rebuffed those offers, arguing that asset management was a core part of its operations. 

Credit Suisse’s slide toward state assistance came after other banks and large investors pulled back last week from doing business with the Swiss lender. Other investment firms stopped trading with the bank in the fall, as its yearslong problems got worse, people familiar with the matter said. 

Analysts have been concerned about rich customers pulling their money. Executives at other banks said they got inflows from Credit Suisse clients last week. 

The impact of a deal on wider financial markets will depend on the details and how much support, if any, regulators provide. Credit Suisse has over $160 billion of long-term debt, some of which is classified as bail-in instruments, which can get wiped out in case regulators force the bank into a restructuring.

Using UBS to save Credit Suisse marks a turnaround from nearly 15 years ago, when Switzerland bailed out UBS after it got stuck with billions of toxic assets in its U.S. business. Credit Suisse declined state aid at the time and emerged from the crisis in stronger shape. 

It went on to be battered by stricter financial regulation and costly settlements with regulators. The bank underwent a series of restructurings. Credit Suisse’s latest management team, some who worked previously at UBS, had appealed for more time to prove they could turn things around.

—Ben Dummett and Patricia Kowsmann contributed to this article.

Write to Margot Patrick at [email protected], Justin Baer at [email protected] and Dana Cimilluca at [email protected]

Credit Suisse took a more-than-$50 billion Swiss National Bank liquidity lifeline this week after concerns deepened about its prospects. The action didn’t do enough to stop the slide in Credit Suisse’s shares or stem the loss of bank deposits, compelling the central bank and Switzerland’s top financial regulator to orchestrate talks with Credit Suisse’s larger 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 as much as $10 billion in outflows a day last week, this person said. The regulators feared that the bank would become insolvent next week if not dealt with, and they were concerned crumbling confidence could spread to other banks.

The banks have discussed a number of scenarios, including those that end with UBS taking over all or parts of Credit Suisse, according to the people familiar with the situation. UBS would likely shrink Credit Suisse’s investment-banking arm, which was in the process of being spun off.

An end to Credit Suisse’s nearly 167-year run would mark one of the most significant moments in the banking world since the 2008 financial crisis. It also would represent a new global dimension of damage from a banking storm started with the sudden collapse earlier this month of Silicon Valley Bank.

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 in total assets. Any full-scale takeover would give UBS prized businesses within Credit Suisse, such as wealth-management clients in Asia and the Middle East, but might come with less desirable units such as Credit Suisse’s troubled investment bank. It also could derail UBS’s existing strategy and perceived stability with investors.

UBS has a market capitalization of roughly $65 billion, versus Credit Suisse’s $8 billion, according to

FactSet.

It made a $7.6 billion net profit in 2022 while Credit Suisse posted a $7.9 billion net loss.

Credit Suisse’s local retail bank, a sticking point in the talks, could on its own be worth $10 billion, 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. 

The talks are also focused on how much aid regulators or the Swiss government will provide.

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

The bank’s legal costs spiraled in recent years from banker misconduct and regulatory settlements. It estimated in February that it could have to pay up to around another $1.3 billion not accounted for. It also faces other litigation, such as around investment funds it ran with collapsed financing partner Greensill Capital.

Another issue is what to do with Credit Suisse’s hobbled investment bank. Credit Suisse was in the early stages of spinning out parts of its investment bank under the name CS First Boston, led by former Credit Suisse board member

Michael Klein.

It agreed to pay $175 million to buy his company, the Klein Group.

Outside investors had started firming up their likely financial commitments to the CS First Boston venture in recent weeks, according to people familiar with the matter. Swiss regulators are concerned that the plan is too complicated to be a part of the merger, and some potential investors in CS First Boston aren’t willing to rush into any commitments, the people said.

Both Credit Suisse and UBS are deemed systemically important in Switzerland and globally, and a combination could be subject to additional oversight and capital charges. Credit Suisse had around 50,000 employees at the end of 2022, including more than 16,000 in Switzerland. It has investment-banking units in cities including New York, London and Singapore, an operations hub near Raleigh, N.C., and employs thousands in technology in India and Poland. UBS has around 74,000 employees globally.

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

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

Swiss authorities are expected to reach at least a rough deal before Monday’s market open. A spokesman for financial regulator Finma and the SNB declined to comment. A finance ministry spokeswoman said it doesn’t comment on rumors.

The talks, which were reported earlier by the Financial Times, might not result in a transaction between Credit Suisse and UBS. They are the top two banks by assets in Switzerland, serving savers and businesses there, and rich customers across the globe. Both have Wall Street investment banks and large asset-management arms. 

UBS might not be the only player in the mix, but people familiar with the matter said Swiss regulators preferred a domestic solution. Other financial institutions were examining the situation to see if they could buy parts of Credit Suisse or back bids, people familiar with those efforts said. 

Large asset managers have long coveted some of the bank’s investing businesses, including its European real estate and U.S. asset-management arms. Credit Suisse’s executives have repeatedly rebuffed those offers, arguing that asset management was a core part of its operations. 

Credit Suisse’s slide toward state assistance came after other banks and large investors pulled back last week from doing business with the Swiss lender. Other investment firms stopped trading with the bank in the fall, as its yearslong problems got worse, people familiar with the matter said. 

Analysts have been concerned about rich customers pulling their money. Executives at other banks said they got inflows from Credit Suisse clients last week. 

The impact of a deal on wider financial markets will depend on the details and how much support, if any, regulators provide. Credit Suisse has over $160 billion of long-term debt, some of which is classified as bail-in instruments, which can get wiped out in case regulators force the bank into a restructuring.

Using UBS to save Credit Suisse marks a turnaround from nearly 15 years ago, when Switzerland bailed out UBS after it got stuck with billions of toxic assets in its U.S. business. Credit Suisse declined state aid at the time and emerged from the crisis in stronger shape. 

It went on to be battered by stricter financial regulation and costly settlements with regulators. The bank underwent a series of restructurings. Credit Suisse’s latest management team, some who worked previously at UBS, had appealed for more time to prove they could turn things around.

—Ben Dummett and Patricia Kowsmann contributed to this article.

Write to Margot Patrick at [email protected], Justin Baer at [email protected] and Dana Cimilluca at [email protected]