(March 17): UBS Group AG and Credit Suisse Group AG are opposed to a forced combination, even as scenario planning for a government-orchestrated tie-up continues, according to people with knowledge of the matter.
UBS would prefer to focus on its own wealth-centric stand-alone strategy, and is reluctant to take on risks related to Credit Suisse, the people said, asking not to be identified as the deliberations are private. Its smaller rival is seeking time to see through its turnaround, after winning a liquidity backstop from the central bank, they said.
Credit Suisse arrested a collapse in investor confidence on Thursday (March 16) after winning a 50 billion franc (US$54 billion or RM241.86 billion) credit line from the Swiss National Bank. That came after the Swiss lender had appealed to authorities for a public show of support, following an unprecedented slump in the shares. With investors jittery after the collapse of Silicon Valley Bank, comments by Credit Suisse’s largest shareholder that it wasn’t willing to invest more in the bank were enough to provoke a deep sell-off on Wednesday.
Credit Suisse was trading 5.5% lower as at 11.55am in Zurich on Friday, after a volatile week of trading. UBS pared gains to be unchanged.
Both UBS and Credit Suisse see a takeover as a potential measure of last resort, given the significant hurdles and overlap from such a transaction, the people said. The government and the lenders are running through a whole range of scenarios, and it remains to be seen which additional steps will be taken beyond the liquidity backstop.
UBS and Credit Suisse declined to comment. The Swiss government didn’t immediately respond to an emailed request for comment.
JPMorgan Chase & Co analysts led by Kian Abouhossein are among those saying the bank’s troubles are most likely to end in its takeover, probably by UBS. A tie-up with its larger rival was also one option discussed in talks between Credit Suisse and Swiss authorities recently, people with knowledge of the matter said earlier this week.
Analysts at Keefe, Bruyette & Woods, in a note headed “sticking plaster” after the liquidity backstop, said the new measures buy the bank time, but a break-up is the most likely solution. Morningstar also said a break-up of the bank would be an alternative to having another capital increase, having raised about US$4 billion from investors late last year.
Credit Suisse could also pursue a break-up of the lender, with the wealth management business going to UBS or another buyer, the Swiss unit being separated as a new entity to protect Swiss deposits, and the asset management and investment banking operations being divested or separated, two of the people said.
Still, objections to a potential deal extend beyond the two firms. The Swiss government is also concerned about job losses that would result from a combination, though would prefer a Swiss solution if possible to the situation, and is most concerned about protecting local businesses and deposits, two people said. Some of the wealth clients may also oppose a merger with UBS, given the overlap in accounts.
A full-blown combination would be a reversal of years of too-big-to fail rules, and would raise antitrust concerns in many business lines. Switzerland has also generally favoured the idea of two global banks, whose rivalry has been one of the key drivers of the competitiveness of Switzerland’s financial services sector. A deal could also lead to higher capital requirements.
UBS chief executive officer Ralph Hamers on Wednesday declined to answer any “hypothetical” questions about Credit Suisse, and only said he’s “focused on our own strategy”.