Credit Suisse bank faces crucial weekend

First modification: 03/18/2023 – 08:12Last modification: 03/18/2023 – 10:13

Several crisis meetings are scheduled for this weekend, both internal conversations at Credit Suisse, as well as discussions by regulators of the banking sector and even the Federal Council, given the size and importance of this entity for the Swiss economy.

On Friday, the British newspaper Financial Times indicated based on several anonymous sources that UBS, the largest Swiss bank, was in talks for a partial or total purchase of its rival with the approval of the Swiss regulatory authorities.

The Swiss central bank wants “a simple and direct solution before the markets open on Monday,” one of these sources told the newspaper, acknowledging that there is “no guarantee” of success.

The CH Media group said that “what the board of directors of UBS does will be decisive.”

Neither Credit Suisse nor the Swiss central bank discussed the information with AFP. UBS and Swiss financial regulator Finma did not immediately respond.

But the current cost of the bank is not exorbitant.

After a black week that led to the intervention of the central bank with a liquidity line of 53.7 billion dollarsits stock market value was around $8.7 billion at Friday’s close.

However, an acquisition of this size is complex, especially if there is an emergency.

And distrust of the entity is high despite the fact that the two Swiss regulators stressed in the midst of the storm that the bank meets “the requirements in terms of capital and liquidity.”

Proof of this is the increase in the prices of hedging instruments against bank defaults or bankruptcies, the so-called credit default swaps (CDS).

Buy what?

The entity experienced two years full of scandals, which have revealed “substantial weaknesses” in its “internal control” as the bank itself acknowledged this week.

In 2022, Credit Suisse suffered a net loss of 7.3 billion Swiss francs ($7.9 billion) against a backdrop of massive withdrawals from its clients. And for this year it still foresees “substantial” losses.

“It’s a bank that never seems to have been able to get its house in order,” Chris Beauchamp, an analyst at IG, said in a stock commentary this week.

As for UBS, it has been on its feet for several years after brushing up against catastrophe with the 2008 financial crisis and it is not clear that it wants to go through a new restructuring now that it is beginning to reap the rewards of its efforts.

Another obstacle may be the Swiss competition authority, which may see the merger of both entities as problematic given their dominant position in the market.

Analysts believe that Credit Suisse’s Swiss arm could be spun off or listed separately to avoid layoffs and massive closures in Switzerland due to duplication of activities between the two groups.

In this way, UBS or another suitor would be left alone to manage the bank’s funds and fortunes, indicates the FT.

Other options pointed out by analysts are the sale of the brokerage activity or, according to JP Morgan, “completely close” the investment bank.

At the end of October, Credit Suisse presented a huge restructuring plan that included cutting 9,000 jobs by 2025, representing 17% of its workforce.

The entity, with a workforce of 52,000 people at the end of October, wanted to focus on more stable activities and radically transform its business banking.