Troubled weekend for troubled Credit Suisse

Shares of Credit Suisse fell. — AFP/File

ZURICH: Troubled Credit Suisse has two days left to forecast a turbulent new week in global finance before markets open on Monday.

The Zurich-based lender held crisis talks this weekend, holding emergency meetings with Swiss banking and regulatory authorities.

According to the Financial Times, Switzerland’s largest bank UBS is in talks to buy all or part of Credit Suisse, with the blessing of Swiss regulators.

The Swiss National Bank (SNB) “wants lenders to agree on a simple and straightforward solution before markets open on Monday,” the source said, admitting there was “no guarantee” of a deal.

According to a Bloomberg report citing anonymous sources, UBS is seeking government guarantees to cover legal costs and potential losses.

US asset management giant BlackRock is also reported to be eyeing a move to the troubled bank, but the New York-based company flatly denied this to AFP.

“BlackRock is not involved in any plans to buy all or part of Credit Suisse and has no interest in doing so,” a spokesman for the AFP news agency said.

Credit Suisse was worth just over $8.7 billion late on Friday after a turbulent week in the stock market that forced the SNB into a $53.7 billion lifeline.

But buying such a size is very complicated.

“Serious Violations”

Although Swiss financial watchdog FINMA and the SNB say Credit Suisse “meets the capital and liquidity requirements for systemically important banks,” uncertainty remains.

Credit Suisse has been embroiled in scandal for the past two years, with its management admitting “material weaknesses” in its “internal controls over financial reporting”.

FINMA accused the bank of “serious breaches of supervisory obligations” in its dealings with disgraced financier Lex Greensillie and his companies.

In 2022, the bank suffered a net loss of $7.9 billion amid massive withdrawals from its customers. It still expects a “huge” pre-tax loss this year.

“This is a bank that never gets its house in order,” IG analyst Chris Beauchamp commented in a market note this week.

Analysts studying Switzerland’s second-biggest bank, one of 30 globally important banks for the international banking system, have argued for yet another major restructuring, the closure of its investment banking unit or even a takeover by a rival.

Credit Suisse’s biggest shareholder said on Wednesday it would “absolutely not increase” its stake in the bank for regulatory reasons, amid fears of contagion following the collapse of two US banks.

The central bank’s lifeline raises questions about whether an orderly bankruptcy could take place, in which regulators would seize Credit Suisse and take it upon themselves to break it up.

Credit Suisse’s CET1 ratio, which compares the bank’s capital to its risk-weighted assets, was 14.1 percent at the end of 2022 — slightly less than HSBC but more than BNP Paribas, one of Europe’s biggest banks.

Merger with UBS

Now it has a large amount of liquidity thanks to the intervention of the SNB.

Analysts at financial services giant JPMorgan insisted that the “status quo is no longer an option”, citing the scenario of another bank takeover by UBS as the “most likely”.

The idea of ​​joining forces with Switzerland’s largest banks is frequently floated, but is generally rejected due to competition concerns and risks to the stability of the Swiss financial system given the size of the bank that such a merger would create.

“The question arises because there are so many interested candidates,” said David Benamu, chief investment officer at Paris-based Axiom Alternative Investments.

“However, Credit Suisse’s management, even if forced by the authorities, will only choose (this option) if it has no other choice,” he said.

The bank will begin implementing a restructuring plan in October, while UBS has spent years trying to resolve its issues.

Credit Suisse’s credit default swaps rose after the bank collapsed in the United States.

With the help of the SNB, Credit Suisse has had “valuable time” for a radical restructuring, says Morningstar analyst Johann Scholtz.

According to him, the current restructuring is “too complex” and “not enough” to convince financiers, clients and shareholders.

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