Credit Suisse tightens on low UBS bid and government aid talks

(Bloomberg) —

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Swiss authorities are considering unprecedented moves to force a takeover of Credit Suisse Group AG by UBS Group AG, with the risk of nationalization mounting by the minute before the market opens on Monday.

UBS is offering to buy Credit Suisse for around 1 billion francs ($1.1 billion), a deal the ailing Swiss company is pushing back with the backing of its largest shareholder, the Saudi National Bank, people familiar with the matter said . His bargaining power is limited, however, as other options may be even more painful for his stock and bond investors.

Swiss officials are considering legislative changes to avoid the need for shareholder votes on the deal, some of the people said. They are considering a full or partial nationalization of Credit Suisse as a fallback option if a UBS deal falls through before time, said some of the people, who asked not to be identified to discuss private deliberations.

As regulators and bankers race toward an agreement to calm markets, officials face a brutal choice between trampling on shareholder rights or risking escalating the crisis. A cheap deal with no say for owners risks lawsuits and hurdles for future international investors investing money in Switzerland. No resolution in the next 12 hours risks something even worse.

Credit Suisse, which closed Friday at a market value of about 7.4 billion Swiss francs ($8 billion), believes UBS’s offer is too low and would hurt shareholders and employees who have been deferring shares, said the people. The book value of Credit Suisse’s equity was CHF 45 billion last year.

A key question is whether Credit Suisse should still be viewed as the bank that regulators said Wednesday night had plenty of capital and liquidity and was dealing with a market panic. But Swiss regulators are concerned that customers and counterparties have withdrawn from the bank over the past week, and officials from the US and elsewhere are pushing for a final fix by the time markets open on Monday to avoid fears of contagion hit the markets or other financial firms.

The UBS offer was announced on Sunday at a price of CHF 0.25 per share to be paid. Credit Suisse closed up 8% at CHF 1.86 on Friday.

Swiss authorities are trying to broker a deal that would address a collapse of Credit Suisse, which sent shockwaves through the global financial system last week as panicked investors dumped their stocks and bonds following the collapse of several smaller US lenders. Years of fighting came to a head after the company said its efforts to win back customers hadn’t halted outflows this year and the Saudi National Bank ruled out a bigger stake.

A liquidity backstop from the Swiss central bank briefly halted the declines, but the market drama poses the risk that customers or counterparties will continue to flee, with possible repercussions for the broader industry.

UBS tries to protect itself when it takes on a large, complex competitor that has little time to fully review its books. She is seeking government backing for certain legal fees and other costs that may arise in the future, Bloomberg reported Saturday. UBS also insisted on a material adverse change that would void the deal if credit spreads widen by 100 basis points or more, the Financial Times reported.

“Clearly, UBS has no pressure to buy a bunch of mismanaged risk exposures at market levels,” said Frederik Hildner, managing director at Confluente Capital. “Your offer of CHF 0.25 per share shows that CS is in serious trouble and may be worthless. Stocks are in for a hard tumble on Monday if no other solutions come to the rescue tonight.”

If government money were injected directly into Credit Suisse, Swiss officials would likely require debt to be collected and additional Tier 1 noteholders could suffer losses, said one of the people involved in the discussions. Credit Suisse had around CHF15 billion in AT1 securities and CHF49 billion in bail-in debt at the end of 2022.

The complex discussions surrounding the first merger of two global systemically important banks since the financial crisis have prompted Swiss and US authorities to get involved, according to people familiar with the matter. Talks accelerated on Saturday, with all sides pushing for a solution that could be implemented quickly.

Credit Suisse’s process of shedding 9,000 jobs to save itself would escalate should the company be acquired by UBS, according to people familiar with the discussions, with one person estimating the ultimate toll could be many times that figure . The two lenders together employed almost 125,000 people at the end of last year, around 30% of them in Switzerland.

–Assisted by Jan-Patrick Barnert and Blaise Robinson.