Credit Suisse Acquisition by UBS: What It Could Mean for the Banking Industry
UBS Group AG is reportedly close to acquiring Credit Suisse Group AG in a bid to restore trust in the banking system, according to people familiar with the situation.
The deal is expected to come together on Sunday and has been expedited by regulators who have offered to waive the requirement for customary shareholder votes. The acquisition is seen as a state-backed solution for Credit Suisse, which has been struggling with mounting concerns about its prospects, including over $10 billion in outflows a day last week.
The urgency of regulators was driven by fears that the bank would become insolvent next week if not dealt with, which could also spread to other banks.
The situation has prompted regulators to orchestrate talks with Credit Suisse’s larger rival, UBS, which could lead to the former’s takeover. The banks have discussed a number of scenarios, including those that end with UBS taking over all or parts of Credit Suisse.
UBS has long been seen as part of any state-backed solution for Credit Suisse, given that the latter’s balance sheet is roughly half the size of UBS’s $1.1 trillion in total assets.
However, 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. The acquisition could also derail UBS’s existing strategy and perceived stability with investors.
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. The combination could also 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.
Swiss authorities are expected to reach at least a rough deal before Monday’s market open. However, UBS might not be the only player in the mix, as other financial institutions are also examining the situation to see if they could buy parts of Credit Suisse or back bids.
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.
If the deal goes through, it will mark one of the most significant moments in the banking world since the 2008 financial crisis and end Credit Suisse’s nearly 167-year run.
The impact of the acquisition 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 are classified as bail-in instruments, which can be wiped out if regulators force the bank to recapitalize.