UBS is about to take over Credit Suisse as part of an effort by Swiss and global authorities to restore trust in the banking system. Customary shareholder votes can be waived by regulators in order to speed up the sale. Credit Suisse has faced as many as $10 billion in outflows a day, and there are concerns that it will become insolvent next week if not dealt with.
As two systemically significant banks in Switzerland and worldwide, a merger of the two could result in additional supervision and capital fees. Any such amalgamation is likely to lead to significant job cuts, going beyond the 9,000 positions that Credit Suisse has already pledged to eliminate. The Swiss authorities are expected to finalize a tentative agreement before the beginning of Monday's market activities.
A source told Reuters that talks are facing significant obstacles, and the merger of the two banks could result in the loss of 10,000 jobs. UBS is asking for guarantees that cover the costs of shutting down certain areas of Credit Suisse and the possibility of litigation charges.
Credit Suisse has a large Swiss retail arm that remains a sticking point in the talks. It is estimated to be worth $10 billion and could create a domestic-banking behemoth with around 30 per cent of the country's domestic loans and deposits. Combining it directly with UBS would give UBS prized businesses, 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.
UBS is seen as a state-backed solution for Credit Suisse, whose balance sheet is roughly half the size of UBS' $1.1 trillion in total assets. A full-scale takeover would give UBS prized businesses within Credit Suisse but might come with less desirable units, such as Credit Suisse's troubled investment bank. This could undermine the credibility of the current approach of the UBS, as well as undermine its perceived reliability among investors.
Other financial institutions are looking at the situation to see if they can buy parts of Credit Suisse or back bids, and large asset managers have long coveted some of the bank's investing businesses. Despite several offers, Credit Suisse's executives have consistently rejected them, asserting that asset management was a fundamental aspect of its operations.
Credit Suisse's slide toward state assistance came after banks and large investors pulled back from doing business with the Swiss lender. In the fall, other investment firms stopped trading with the bank as its years-long problems got worse. The decision to employ UBS to rescue Credit Suisse marks a reversal from almost 15 years ago when UBS received a bailout from Switzerland after being burdened with billions of toxic assets in its US operations.
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