Switzerland prepares emergency measures to deliver UBS takeover of Credit Suisse

Switzerland is preparing to use emergency measures to fast-track the takeover by UBS of Credit Suisse, according to three people familiar with the situation, as the banks and their regulators rush to seal a merger deal before markets open on Monday.

Under Swiss rules, UBS would typically have to give shareholders six weeks to consult on the acquisition, which would combine Switzerland’s two biggest lenders.

Three people briefed on the situation said UBS had indicated that emergency measures would be used so that it could skip the consultation period and pass the deal without a shareholder vote. The details are still being worked out, one of the people said.

Switzerland’s regulator Finma did not immediately respond to requests for comment. The Swiss central bank, Credit Suisse and UBS declined to comment.

The Swiss National Bank and regulator Finma have told international counterparts that they regard a deal with UBS as the only option to arrest a collapse in confidence in Credit Suisse and are working to reach regulatory agreement by Saturday night.

UBS has said it will continue with Credit Suisse’s plans to shrink its investment bank, so that the combined entity will make up no more than a third of the merged group, two of the people said.

The Swiss cabinet met for an emergency meeting on Saturday evening to discuss the future of Credit Suisse. The cabinet assembled in the finance ministry in Bern for a series of presentations from government officials, the Swiss National Bank, the market regulator Finma, and representatives of the banking sector.

The boards of the two banks are meeting this weekend. Credit Suisse’s key regulators in the US, the UK and Switzerland are considering the legal structure of a deal and several concessions that UBS has sought.

UBS wants to be allowed to phase in any demands it would face under global rules on capital for the world’s biggest banks. Additionally, UBS has requested some form of indemnity or government agreement to cover future legal costs, one of the people said.

Credit Suisse set aside SFr1.2bn in legal provisions in 2022 and warned that as yet unresolved lawsuits and regulatory probes could add another SFr1.2bn.

UBS’s leadership team have concerns about taking on Credit Suisse’s investment bank, which has been the source of many of its scandals and losses in recent years, according to people familiar with their thinking. They would want to reassess the case for spinning off the bulk of the business into a new CS First Boston division.

The race for a deal comes days after the Swiss central bank was forced to provide an emergency SFr50bn ($54bn) credit line to Credit Suisse.

This failed to arrest a slide in its share price, which has fallen to record lows after its largest investor ruled out providing any more capital and its chair admitted that an exodus of wealth management clients had continued.

Deposit outflows from Credit Suisse topped SFr10bn ($10.8bn) a day late last week as fears for its health mounted, according to two people familiar with the situation.

Shares of other European banks were also hit hard by the crisis in confidence which was triggered by the collapse of Silicon Valley Bank last weekend.

The prospective takeover reflects the sharp divergence in the two banks’ fortunes. Over the past three years, UBS shares have gained about 120 per cent while those of its smaller rival have plunged roughly 70 per cent.

The former has a market capitalisation of $56.6bn, while Credit Suisse closed trading on Friday with a value of $8bn. In 2022, UBS generated $7.6bn of profit, whereas Credit Suisse made a $7.9bn loss, effectively wiping out the entire previous decade’s earnings.

Swiss regulators told their US and UK counterparts on Friday evening that merging the two banks was “plan A” to arrest a collapse in investor confidence in Credit Suisse, one of the people said. There is no guarantee a deal will be reached.

Negotiators have given Credit Suisse the code name Cedar and UBS is referred to as Ulmus, according to people briefed on the matter.

The fact that the SNB and Finma favour a Swiss solution has deterred other potential bidders. US investment giant BlackRock had drawn up a rival approach, evaluated a number of options and talked to other potential investors, according to people briefed about the matter.

A full merger between UBS and Credit Suisse would create one of the biggest global systemically important financial institutions in Europe. UBS has $1.1tn total assets on its balance sheet and Credit Suisse has $575bn. However, such a large deal may prove too unwieldy to execute.

The Financial Times has previously reported that other options under consideration include breaking up Credit Suisse and raising funds via a public offering of its ringfenced Swiss division, with the wealth and asset management units being sold to UBS or other bidders.

UBS has been on high alert for an emergency rescue call from the Swiss government after investors grew wary of Credit Suisse’s most recent restructuring. Last year, chief executive Ulrich Körner announced a plan to cut 9,000 jobs and spin off much of its investment bank into a new entity called First Boston, run by former board member Michael Klein.

With additional reporting by Sam Jones in Zurich