O UBSone of the largest banks in Switzerland and Europe, has agreed to purchase the competitor Swiss creditwhich has come under the spotlight of the market in recent days. The acquisition would be for more than $2 billion or something around 50 Swiss franc cents per share, well below the close of Credit Suisse shares on Friday, the 17th, when they ended at 1.86 Swiss francs. The information is from the British newspaper Financial Times.
According to the newspaper, sources close to the operation said that the Swiss government, and the management of the two banks rush to close deal before Asian markets open. Therefore, the signing of the acquisition may come out this Sunday night.
But the whole process is complex. Also according to people interviewed by the Financial Times, the acquisition brings governance issues to the fore. Part of the deal is the relaxation of a material adverse change clause that would void it if its credit default spreads increased. In addition, part of these clause changes would prevent shareholders’ votes from UBS.
Vincent Kaufmann, chief executive of the Ethos Foundation, which represents Swiss pension funds that own between 3% and 5% of Credit Suisse and UBS, told the Financial Times that the decision to circumvent the shareholder vote on the deal was a bad one. corporate governance.
“I don’t think our UBS members and shareholders will be happy about this,” he said. “I have never seen such measures taken; it shows how bad the situation is.”
A person with knowledge of the talks told the news agency Reuters that the UBS was seeking $6 billion from the Swiss government as part of a possible buyout of its rival.
The guarantees UBS is seeking would cover the cost of liquidating parts of Credit Suisse and possible litigation charges, two sources told the news outlet.
What can happen if Credit is sold to UBS?
JPMorgan’s Kian Abouhossein predicts that if UBS took over Credit Suisse, it would IPO CS Swiss, close Credit Suisse’s investment bank and retain the asset and wealth management arms.
According to sources heard by the FT, UBS will drastically shrink Credit Suisse’s investment bank, so that the combined entity will not represent more than a third of the group resulting from the merger.
In a report last week, however, the JP Morgan analyst says that closing Credit Suisse’s investment bank would imply 9.7 billion Swiss francs in restructuring costs, although it would yield something around 64 billion Swiss francs.
The government is preparing emergency measures to speed up the takeover and plans to introduce legislation that will circumvent the normal six-week consultation period required before the deal can be sealed immediately.
The structure of the deal was designed by Swiss regulators to provide maximum stability to the country’s banking system, people briefed on the matter said. Swiss authorities have already secured pre-approval from relevant regulators in the US and Europe, who are expected to issue coordinated statements today.
UBS is seeking concessions and protections from the government, particularly from any pending legal proceedings and regulatory investigations into Credit Suisse that could result in fines or damages, the FT reported. However, it is unlikely to receive compensation for any asset losses, one of the people involved said.
UBS also wants to be allowed to gradually introduce any extra demands it would face under the global capital rules that govern the world’s biggest banks.
Why is Credit Suisse in crisis?
After the panic generated by the bankruptcy of SVB, it was Credit Suisse’s turn to add doses of concern to the market. On Tuesday, March 14, the bank said it had found “material weakness” in its balance sheets and scrapped executive bonus payouts after the bank’s worst annual performance since the global financial crisis.
But the truth is that since 2022, the bank has already been making cost cuts, which included closing jobs. In 2021, the bank suffered a loss of BRL 5.5 billion, related to the fund Archegos Capital Management. The bank also suffered billionaire losses with the Greensill.
Now, in March 2023, a Securities and Exchange Commission (SEC)which is the US CVM, presented questions about the evolution of cash flows in 2019 and 2020.
*With information from Reuters and Financial Times
