UBS agrees to buy Credit Suisse

UBS has agreed to buy Swiss banking giant Credit Suisse after increasing its offer to more than US$2 billion, the Financial Times reported on Sunday, as authorities bid to stave off turmoil when the markets reopen.

Officials have been racing to rescue the 167-year-old bank, among the world's largest wealth managers, after a brutal week that saw the second and third largest US bank failures in history. As one of 30 global banks seen as systemically important, any deal for Credit Suisse could ripple through global financial markets.

At least two major banks in Europe are examining scenarios of contagion possibly spreading in the region's banking sector and looking to the Federal Reserve and the European Central Bank to step in with stronger signals of support, two senior executives with knowledge of the discussions told Reuters.

A person with knowledge of the talks earlier told Reuters that UBS sought US$6 billion from the Swiss government as part of a possible purchase of its rival. The guarantees would cover the cost of winding down parts of Credit Suisse and potential litigation charges.

One source previously said the talks were encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combined. The Swiss Bank Employees Association on Sunday called for the immediate creation of a task force to deal with the risk to jobs.

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.

Credit Suisse shares lost a quarter of their value last week. The bank was forced to tap US$54 billion in central bank funding as it tries to recover from scandals that have undermined the confidence of investors and clients.

 

UBS examining takeover of Credit Suisse

UBS AG was examining on Saturday a takeover of embattled lender Credit Suisse that could see the Swiss government offer a guarantee against the risks involved.

The 167-year-old Credit Suisse is the biggest name ensnared in the market turmoil unleashed by the collapse of US lenders Silicon Valley Bank and Signature Bank over the past week, and its slide has fanned fears of broader banking problems.

To get the crisis under control, UBS was coming under pressure from the Swiss authorities to carry out a takeover, Reuters' sources said. Under the plan, Credit Suisse's Swiss business could be spun off, they added.

Credit Suisse Chief Financial Officer Dixit Joshi and his teams were meeting over the weekend to assess their options for the bank, people with knowledge of the matter said.

The bank's share price swung wildly this week, during which it was forced to tap US$54 billion in central bank funding, and Credit Suisse had lost a quarter of its market value by Friday night.

The mood in Switzerland, long considered an icon for banking stability, was pensive as executives wrestled with the future of the country's biggest lenders.

"Banks in permanent stress" read the front page headline of the Neue Zuercher Zeitung newspaper on Saturday morning.

Credit Suisse ranks among the world's largest wealth managers and is considered one of 30 global systemically important banks whose failure would cause ripples throughout the entire financial system.

In a sign of its vulnerability, at least four of Credit Suisse's major rivals, including Societe Generale SA and Deutsche Bank AG, have put restrictions on their trades involving the Swiss bank or its securities.

Goldman Sachs cut its recommendation on exposure to European bank debt, saying a lack of clarity on Credit Suisse's future would put pressure on the broader sector in the region.

Although the banking system was more robust than it was at the time of the financial crisis in 2008, a more forceful policy response is likely needed to bring some stability, Goldman analyst Lotfi Karoui wrote in a note to clients.

Already this week, big US banks provided a US$30 billion lifeline for smaller lender First Republic while US banks altogether have sought a record US$153 billion in emergency liquidity from the Federal Reserve in recent days.

This reflected funding and liquidity strains on banks, driven by weakening depositor confidence, said ratings agency Moody's, which this week downgraded its outlook on the US banking system to negative.

In Washington, focus turned to greater oversight to ensure that banks - and their executives - are held accountable.

US President Joe Biden called on Congress to give regulators greater power over the sector, including imposing higher fines, clawing back funds and barring officials from failed banks.

Some Democratic lawmakers asked regulators and the Justice Department to probe the role of Goldman Sachs in SVB's collapse, said the office of Representative Adam Schiff.

Banking stocks globally have been battered since Silicon Valley Bank collapsed, raising questions about other weaknesses in the financial system.

US regional bank shares fell sharply on Friday and the S&P Banks index posted its worst two-week calendar loss since the pandemic shook markets in March 2020, slumping 21.5%.

First Republic Bank ended Friday down 32.8%, bringing its loss over the last 10 sessions to more than 80%.

While support from some of the biggest names in US banking prevented First Republic's collapse this week, investors were startled by disclosures on its cash position and how much emergency liquidity it needed.

The failure of SVB, meanwhile, brought into focus how a relentless campaign of interest rate hikes by the US Federal Reserve and other central banks, including the European Central Bank this week, was putting pressure on the banking sector.

Many analysts and regulators have said SVB's downfall was due to its specialized, tech-focused business model, while the wider banking system was much more robust thanks to reforms adopted in the years after the global financial crisis.

But a senior official at China's central bank said on Saturday that high interest rates in the major developed economies could continue to cause problems for the financial system.

 

OPEC+ terms oil price drop financially driven

OPEC Plus attributes this week's slide in oil prices to a more than one-year low to be driven by financial fears, not any imbalance between demand and supply, and expects the market to stabilize, four delegates from the oil producer group told Reuters.

Oil sank to a 15-month low on Wednesday, with Brent crude below US$72 a barrel, on concerns about contagion from a banking crisis. Crude stabilized on Thursday after Credit Suisse was thrown a financial lifeline by Swiss regulators.

"It's purely financially driven and has nothing to with the demand and supply of oil," one of the delegates said, asking not to be named. OPEC Plus is most likely ‘wait and see’ in expectation that the situation will normalize soon.

Three other delegates from the OPEC+ Plus producer group comprising the Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies, made similar remarks.

The comments will dampen any speculation that OPEC Plus is concerned about weakening prices and might consider further steps to support the market. The group's next policy meeting is not until June, though an advisory panel of key ministers meets on April 03.

One of the delegates said OPEC's latest monthly oil market report, released on Tuesday with an upgraded demand forecast for China, pointed to a sound balance between supply and demand.

"We are focusing on market fundamentals," another of the sources said.

Last November, with prices weakening, OPEC Plus reduced its output target by 2 million bpd - the largest cut since the early days of the COVID-19 pandemic in 2020. The same reduction applies for the whole of 2023.

Ministers from Algeria and Kuwait this week praised the decision and Saudi Arabia's energy minister told Energy Intelligence that OPEC Plus will stick to the reduced target until the end of the year.

Credit Suisse sued by US shareholders

US shareholders of Credit Suisse Group AG sued the Swiss bank on Thursday, claiming that the bank defrauded them by concealing problems with its finances.

The proposed class action accuses Credit Suisse of deceiving investors by failing to disclose that it was suffering from significant customer outflows, and that it had material weaknesses in its internal controls over financial reporting.

Shareholders led by Braden Turner said that as the truth became known, and Credit Suisse's largest shareholder said it would not put more money into the bank, investors fled, causing losses as Credit Suisse's stock price sank to a record low.

The lawsuit appears to be the first by US investors over recent problems at Credit Suisse, which regained some market confidence on Thursday after securing a lifeline to borrow up to US$54 billion from Switzerland's central bank.

Credit Suisse declined to comment on the lawsuit, which was filed in federal court in Camden, New Jersey. Chief Executive Ulrich Koerner and Chair Axel Lehmann are among the other defendants.

Turner, the named plaintiff, sued on behalf of holders of Credit Suisse's American depositary shares from March 10, 2022, to March 15, 2023.

The law firm representing Turner was also first to file shareholder lawsuits against Silicon Valley Bank parent SVB Financial Group and Signature Bank. Regulators seized both of those banks within the last week.

Credit Suisse's largest shareholder is Saudi National Bank. The Saudi bank's chairman said in a TV interview on Wednesday that regulatory issues were the main reason it would not add to its 9.9% Credit Suisse stake.

 

Credit Suisse secures US$54 billion to prevent global bank crisis

Credit Suisse on Thursday said it would borrow up to US$54 billion from the Swiss central bank to shore up its liquidity and investor confidence after a slump in its shares intensified fears about a global financial crisis.

The Swiss bank's announcement helped stem heavy selling in financial markets in Asian morning trade on Thursday, following torrid sessions in Europe and the United States overnight as investors fretted about a run on global bank deposits.

In its statement early Thursday, Credit Suisse said it would exercise its option to borrow from the Swiss National Bank up to 50 billion Swiss francs (US$54 billion). That followed assurances from authorities in the private banking hub on Wednesday that Credit Suisse met the capital and liquidity requirements imposed on systemically important banks and that it could access central bank liquidity if needed.

Credit Suisse is the first major global bank to be given such a lifeline since the 2008 financial crisis - though central banks have extended liquidity more generally to banks during times of market stress including the coronavirus pandemic.

Asian stocks were hit by Wall Street's tumble on Thursday and investors bought gold, bonds and the dollar. While the bank's announcement helped trim some of those losses, trade was volatile and sentiment fragile.

"It does help. It removes an immediate risk. But it confronts us with another choice. The more we do this, the more we blunt monetary policy, the more we have to live with higher inflation -- and what is it going to be?" said Damien Boey, Chief Equity Strategist at Barrenjoey in Sydney.

"Do bailouts make things better? On the one hand, you are removing a source of risk to the markets which is a clear and present danger. On the other hand we are feeding into this paradigm of monetary policy bucking within itself."

The Swiss bank's problems have shifted the focus for investors and regulators from the United States to Europe, where Credit Suisse led a selloff in bank shares after its largest investor said it could not provide more financial assistance because of regulatory constraints.

The concerns about Credit Suisse added to broader banking sector fears sparked by last week's collapse of Silicon Valley Bank and Signature Bank, two US mid-size firms.

Credit Suisse's borrowing will be made under the covered loan facility and a short-term liquidity facility, fully collateralized by high quality assets. It also announced offers for senior debt securities for cash of up to 3 billion francs.

"This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs," the bank said.

Investor focus is also on any action by central banks and other regulators elsewhere to restore confidence in the banking system as well as any exposure businesses may have to Credit Suisse.

SVB's demise last week, followed by that of Signature Bank two days later, sent global bank stocks on a roller-coaster ride this week, with investors discounting  assurances from US President Joe Biden and emergency steps giving banks access to more funding.

FINMA and the Swiss central bank said there were no indications of a direct risk of contagion for Swiss institutions from US banking market turmoil.

On Wednesday, Credit Suisse shares led a 7% fall in the European banking index, while five-year credit default swaps (CADS) for the flagship Swiss bank hit a new record high.

The investor exit for the doors prompted fears of a broader threat to the financial system, and two supervisory sources told Reuters that the European Central Bank had contacted banks on its watch to quiz them about their exposures to Credit Suisse.

The US Treasury also said it is monitoring the situation around Credit Suisse and is in touch with global counterparts, a Treasury spokesperson said.

Rapid rises in interest rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders who are also worried about a recession.

Traders are now betting that the Federal Reserve, which just last week was expected to accelerate its interest-rate-hike campaign in the face of persistent inflation, may be forced to hit pause and even reverse course.

Bets on a large European Central Bank interest-rate hike at Thursday's meeting also evaporated quickly as the Credit Suisse rout fanned fears about the health of Europe's banking sector. Money market pricing suggested traders now saw less than a 20% chance of a 50 basis point rate hike at the ECB meeting.

Unease sparked by SVP's demise has also prompted depositors to seek out new homes for their cash.

Ralph Hammers, CEO of Credit Suisse rival UBS said market turmoil has steered more money its way and Deutsche Bank CEO Christian Sewing said that the German lender has also seen incoming deposits.