Critical time for Credit Suisse talks as UBS seeks Swiss assurances

Conversations about rescue CreditSuisse rolled into Sunday as UBS demanded $6 billion from the Swiss government to cover costs if it bought its struggling rival, a person with knowledge of the talks said.

Authorities are scrambling to resolve a crisis of confidence in 167-year-old Credit Suisse, the mostly globally significant bank caught in the turmoil sparked by last week’s collapse of US lenders Silicon Valley Bank and Signature Bank .

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While regulators want a solution ahead of markets reopening on Monday, a source warned the talks are hitting significant roadblocks and may require 10,000 job cuts if the two banks merge.

The guarantees sought by UBS would cover the costs of winding up parts of Credit Suisse and possible litigation costs, two people told Reuters.

Credit Suisse, UBS and the Swiss government declined to comment.

The weekend’s frenetic negotiations follow a brutal week for bank stocks and efforts in Europe and the US to prop up the sector. US President Joe Biden’s administration moved to prop up consumer deposits, while the Swiss central bank lent billions to Credit Suisse to stabilize its shaky balance sheet.

UBS has been pressured by Swiss authorities to take over its local rival to deal with the crisis, two people familiar with the matter said. The plan could see a spin-off of Credit Suisse’s Swiss business.

Switzerland is preparing for emergency measures to speed up the deal, the Financial Times reported, citing two people familiar with the situation.

US authorities are involved and are working with their Swiss counterparts to help broker a deal, Bloomberg News reported, citing people familiar with the matter.

Berkshire HathawayBuffett’s Warren has held talks with senior Biden administration officials over the banking crisis, a source told Reuters.

The White House and the US Treasury Department declined to comment.

UK Treasury Secretary Jeremy Hunt and Bank of England Governor Andrew Bailey were also in regular contact this weekend about the fate of Credit Suisse, a source familiar with the matter said. Spokesmen for the UK Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.

Credit Suisse shares lost a quarter of their value in the last week. The bank has been forced to tap $54 billion in central bank money to recover from a series of scandals that have eroded investor and customer confidence.

It is one of the world’s largest asset managers and is considered one of 30 global systemically important banks – the failure of a single one would have an impact on the entire financial system.

There have been several interesting reports from other competitors for Credit Suisse. Bloomberg reported that Deutsche Bank is considering buying some of its assets while the US financial giant BlackRock denied a report that it was taking part in a competing bid for the bank.

The failure of California-based Silicon Valley Bank drew attention as a relentless campaign of rate hikes by the US Federal Reserve and other central banks – including the European Central Bank on Thursday – put pressure on the banking sector.

The collapse of SVB and Signature is the largest banking collapse in US history after the collapse of Washington Mutual during the global financial crisis in 2008.

First Citizens BancShares is considering an offer for the SVB, and at least one other interested party is seriously considering an offer, Bloomberg News reported on Saturday.

Bank stocks have been battered around the world since the collapse of the SVB, with the S&P Banks Index falling 22%, the biggest two-week loss since the pandemic rocked markets in March 2020.

Big US banks have thrown a $30 billion lifeline to smaller lenders First Republic. US banks have requested $153 billion in emergency liquidity from the Federal Reserve in recent days.

The mid-size bank Coalition of America asked regulators to extend federal insurance to all deposits for the next two years, Bloomberg News reported Saturday, citing a letter from the coalition.

In Washington, the focus has shifted to increased oversight to ensure banks and their executives are held accountable.

Biden called on Congress to give regulators more power over the sector, including imposing higher fines, clawing back funds and banning officials from failed banks.

The rapid and dramatic events may mean big banks grow, smaller banks struggle to keep up, and more regional lenders may close.

“People are actually moving their money around, all these banks are going to look fundamentally different in three months, six months,” said Keith Noreika, vice president of Patomak Global Partners and a Republican former U.S. Comptroller.