UBS is in emergency talks to buy Credit Suisse as authorities bid to stave off turmoil when markets reopen on Monday.
Bloomberg News, citing people with knowledge of the matter, said Credit Suisse was resisting the offer of up to US$1 billion, believing it to be too low and that it would hurt shareholders and employees who hold deferred stock. If the takeover falls apart, Switzerland is considering taking over the bank in full or holding a significant equity stake, Bloomberg reported.
UBS has also insisted on a “material adverse change” that voids the deal if its credit default spreads jump by 100 basis points or more, the report added. It said there was no guarantee terms will remain the same or that a deal would be reached. Swiss broadcaster SRF and other media reported that the government would hold an “important” press conference later on Sunday. They did not give any more details.
“If Credit Suisse fails, that would pose a significant systemic issue for bondholders as it would be hard for them to stomach the failure of a bank when it’s not sitting on unrealized investment losses like in the U.S.,” said Jerome Legras, head of research at Axiom Alternative Investments, an investor in Credit Suisse’s AT1 debt.
The plan could see Credit Suisse’s Swiss business spun off, while Bloomberg reported that the takeover talks were throwing into doubt plans to hive off its investment bank under the First Boston brand.The failure of Silicon Valley Bank brought into focus how a campaign of interest rate hikes by the U.S. Federal Reserve and other central banks – including the European Central Bank on Thursday – was pressuring the banking sector.
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