Future of Credit Suisse: Fire Sale or Nationalization?

In the struggle for the future of Credit Suisse, several options appear to be on the table: an emergency purchase by rival UBS or nationalization. How things will continue for the big bank could become known in the evening.

The fate of the reeling major Swiss bank Credit Suisse is still unclear. Several options are probably on the table – from an emergency purchase by the larger local rival UBS to a takeover by the state. The Swiss government’s announcement that it intends to hold an “important media conference” on the crisis in the evening could indicate that a decision will be made soon. According to Swiss television, the exact time for this has not yet been determined.

As several media continue to report, the Swiss supervisory authorities are urging UBS to take over all or part of its smaller rival. However, the two institutes do not agree on the price. According to a report by the “Financial Times”, UBS is said to have offered to take over the local rival for up to one billion US dollars. According to another media report, the offer from Credit Suisse was not well received. The Bloomberg news agency reported that the bank is said to have rejected UBS’s terms with the backing of its largest shareholders.

Bank of England probably indicated agreement

However, the option is apparently not off the table: According to a report by the “Sky News” broadcaster, the Bank of England has indicated its approval of a possible takeover of Credit Suisse by UBS. The British central bank has signaled to its international colleagues and UBS that it will support the emergency transaction, the broadcaster reported.

According to media reports, state guarantees are a prerequisite for such a mega deal. The Swiss government in Bern should issue a guarantee to cover the risks associated with the takeover, it said. A takeover of Credit Suisse by UBS would be the most significant banking merger in Europe since the financial crisis 15 years ago. This would create one of the largest systemically important financial institutions in Europe.

nationalization another possibility

As an alternative to the UBS takeover, Switzerland is examining a complete or partial nationalization of the bank, as “Bloomberg” further reported. Neither the institutes involved nor the supervisory authorities recently commented on the status of the negotiations.

The Swiss government met again today in Bern for a crisis meeting. The background is, among other things, that laws would have to be changed for a quick takeover of the bank. The Financial Times wrote that the Swiss government could take emergency measures to speed up the merger process. You could, for example, shorten the period of six weeks that is actually necessary for the consultation of shareholders in the event of a takeover.

Agreement sought by Monday morning

According to media reports, the aim is to reach an agreement by Monday morning – before the global stock exchanges open. For the central bank, financial regulator and government in Switzerland, it is also about preventing a major global banking crisis. The government is under considerable pressure to stabilize the situation. Because Credit Suisse is one of the 30 systemically important banks worldwide whose failure would shake the international financial system.

Banking crisis should be avoided

After scandals and mismanagement, Credit Suisse was already ailing – the collapse of the US financial institution Silicon Valley Bank (SVB) caused it to fall into another downward spiral. The Swiss National Bank then provided the institute with loans of up to CHF 50 billion – the equivalent of almost EUR 51 billion. However, the measure was only able to stop the downward trend in the share price temporarily.

It is the first time since the financial crisis of 2007 that a central bank has felt compelled to provide support for such a large bank. For the central bank, financial regulators and the government, it is now also a question of preventing a general banking crisis. The government in Bern is under enormous pressure to stabilize the situation.