UBS, the largest bank in Switzerland, is in advanced negotiations to acquire all or a portion of its ailing rival Credit Suisse.
The second-largest Swiss bank, Credit Suisse, is experiencing a crisis of confidence, and its shares have dropped precipitously recently, worrisome the markets.
The Financial Times reports that UBS is prepared to offer up to $1 billion (£820 million) to acquire Credit Suisse.
Before the markets open again on Monday, regulators are attempting to broker a solution.
The stability of the global financial system has been called into question as a result of the problems at Credit Suisse and the bankruptcy of two smaller US banks over the past two weeks.
One of the roughly 30 banks considered too big to fail due to its significance to the banking system is Credit Suisse.
Yet, the 167-year-old organization is in the red and has encountered numerous issues lately, including accusations of money laundering.
The Swiss National Bank’s emergency $54 billion (£44.5 billion) rescue on Wednesday failed to calm the markets, and Credit Suisse shares fell 24%, sparking a larger sell-off on European markets.
The FT, which broke the news that regulators and the Swiss National Bank were aiding discussions between the two Swiss banking goliaths, said a deal might be reached as soon as Sunday night.
Credit Suisse shares would be valued at less than a sixth of their Friday price under the offer that is currently thought to be on the table. The FT, however, stated that an agreement has not yet been signed and that the terms could alter.
The FT reports that the Swiss authorities are preparing to amend the country’s regulations to forgo a shareholder vote on the transaction, which would ordinarily give UBS shareholders six weeks to review a deal of this magnitude.
While regulators and management contemplate the future of Credit Suisse, Bank of England officials have acknowledged they are in frequent contact with their counterparts at the Swiss National Bank. The situation is also being watched by the UK Treasury.
According to Mohammed El-Erian, top economic counselor to the German financial services company Allianz, the agreement would amount to a considerable intervention from the Swiss government.
“This is not a choice decision, this is a shotgun marriage, and it’s being done to restore financial stability,” Mr. El-Erian told the BBC. Without it, Credit Suisse risked entering a death cycle in which conducting banking operations became significantly more difficult.
“At a time when there are also banking issues in the United States, that might create questions about other banks.”
According to Mr. El-Erian, the current unrest may cause banks to become more “risk conservative,” which would decrease the amount of credit available.
In contrast to the abrupt halt experienced during the 2008 financial crisis, which was “in a completely different league” from today’s issues, he added, it amounted to a “headwind” for the global economy.
According to sources cited by Reuters, UBS is alleged to have requested that the Swiss government pay around $6 billion (£4.9 billion) in costs if it were to acquire Credit Suisse.
Credit Suisse warned it does not expect to be profitable until 2024 after reporting a loss of 7.3 billion Swiss francs ($7.9 billion; £6.5 billion) in 2022, the company’s worst year since the 2008 financial crisis.
UBS, however, generated a $7.6 billion profit in 2022.
Any agreement may also lead to massive employment losses.
Credit Suisse handles the assets of wealthy clients in addition to being a domestic bank with 95 locations. It also operates a global investment banking operation.
Credit Suisse had 50,480 employees worldwide at the end of 2017, including 16,700 in Switzerland, while the Swiss station SRF estimates that 9,000 positions would be eliminated.