The Swiss government is close to announcing a deal that would involve UBS buying Credit Suisse, its smaller, beleaguered rival, for about $1 billion, three people with knowledge of the matter said on Sunday.
The takeover of Credit Suisse is the most consequential fallout to date from the turmoil that spread from the implosion of Silicon Valley Bank earlier this month. But Credit Suisse’s troubles were largely of its own making, tied to years of scandals and financial missteps that have cost it billions of dollars in trading losses and legal fines.
Not even a $54 billion lifeline from the Swiss National Bank, announced last week, was able to stem the erosion of investor confidence that sank Credit Suisse’s shares to record lows. Talks between Credit Suisse and the far stronger UBS intensified over the past week, as Swiss banking authorities sought to avoid a chaotic dissolution of Credit Suisse.
Under the terms of the proposed deal, UBS will pay just a fraction of the roughly 8.8 billion Swiss francs, or $9.5 billion, that Credit Suisse was valued at on Friday, these people said. They cautioned that the terms are still being negotiated last minute and talks may still fall apart.
Representatives for Credit Suisse and the Swiss National Bank declined to comment, while those for UBS and Finma, the Swiss financial regulator, could not be immediately reached.
The Swiss government is expected to allow some financial rules to be bypassed, notably a six-week consultation period with UBS shareholders before any transaction can be approved.
The potential move represents the unwinding of a 166-year-old institution created to finance Switzerland’s rail network that ascended to the top echelons of finance, at times standing toe-to-toe with American titans like JPMorgan Chase. But Credit Suisse was tarred by scandals over the years — from money laundering to wrong-way trading bets — that left it reeling from losses and damaged its reputation.
The bank had been struggling to turn itself around in recent months, but two events last week contributed to Credit Suisse’s fall. First, the bank disclosed on Tuesday that there were “material weaknesses” in its financial reporting. And second, it was swept up in the broad and intensifying panic around the health of banks: As shares in lenders around the world tumbled following the collapse of Silicon Valley Bank and Signature Bank, markets grew especially wary of Credit Suisse.
Prices for Credit Suisse shares and bonds dropped sharply all week, as did the cost of insuring its debt against default, despite efforts by Swiss regulators to shore up investor confidence. On Thursday, Credit Suisse said it would tap a $54 billion lifeline from the Swiss central bank in hopes of staving off a disaster.
Details of the proposed transaction with UBS were reported earlier by The Financial Times.
This is a developing story. Check back for updates.