Crunch time for Credit Suisse talks as UBS seeks Swiss insurance

Talks about rescuing Credit Suisse rolled on Sunday as UBS sought $6 billion from the Swiss government to cover costs if it were to buy its struggling rival, a person with knowledge of the talks said.

Authorities are scrambling to resolve a crisis of confidence at 167-year-old Credit Suisse, the mostly globally significant bank caught up in the turmoil spurred by the collapse of US lenders Silicon Valley Bank and Signature Bank last week.

While regulators want a solution before markets reopen on Monday, one source warned that the talks face significant hurdles and 10,000 jobs may have to be cut if the two banks merge.

The guarantees UBS is seeking will cover the costs of winding up parts of Credit Suisse and potential lawsuits, two people told Reuters.

Credit Suisse, UBS and the Swiss government declined to comment.

The frantic weekend negotiations follow a brutal week for banking stocks and efforts in Europe and the US to bolster the sector. US President Joe Biden’s administration moved to freeze consumer deposits, while the Swiss National Bank lent billions to Credit Suisse to stabilize its faltering balance sheet.

UBS was under pressure from Swiss authorities to take over its local rival to bring the crisis under control, two people with knowledge of the matter said. The plan could lead to Credit Suisse’s Swiss operations being spun off.

Switzerland is preparing to use emergency measures to speed up the deal, the Financial Times reported, citing two people familiar with the situation.

US authorities are involved and are working with their Swiss counterparts to help broker a deal, Bloomberg News reported, also citing people familiar with the matter.

Berkshire Hathaway’s Warren Buffett has had discussions with senior officials in the Biden administration about the banking crisis, a source told Reuters.

The White House and the US Treasury Department declined to comment.

British Chancellor of the Exchequer Jeremy Hunt and Bank of England Governor Andrew Bailey are also in regular contact this weekend about the fate of Credit Suisse, a source familiar with the matter said. Spokesmen for the UK Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.

Credit Suisse shares lost a quarter of their value in the past week. The bank was forced to use $54 billion in central bank funding as it tries to recover from a series of scandals that have undermined investor and customer confidence.

It ranks among the world’s largest asset managers and is considered one of 30 global systemically important banks – a failure until someone wants to ripple through the entire financial system.

There were several reports of interest in Credit Suisse from other rivals. Bloomberg reported that Deutsche Bank was considering buying some of its assets, while US financial giant BlackRock denied a report that it was participating in a competing bid for the bank.

The failure of California-based Silicon Valley Bank 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 on Thursday – has squeezed the banking sector.

SVB and Signature’s collapses are the largest bank failures in US history behind Washington Mutual’s demise during the 2008 global financial crisis.

First Citizens BancShares is considering an offer for SVB and at least one other suitor is seriously considering an offer, Bloomberg News reported Saturday.

Bank shares globally have been hit since SVB collapsed, with the S&P Banks index falling 22%, the biggest loss in two weeks since the pandemic rocked markets in March 2020.

Major US banks threw a $30 billion lifeline to smaller lender First Republic. American banks have sought a record 153 billion dollars in emergency liquidity from the Federal Reserve in recent days.

The Mid-Size Bank Coalition of America asked regulators to extend federal insurance to all deposits for the next two years, Bloomberg News reported Saturday, citing a letter from the coalition.

In Washington, the focus has turned to greater oversight to ensure that the banks and their managers are held accountable.

Biden called on Congress to give regulators more power over the sector, including imposing higher fines, revoking funds and barring officials from failed banks.

The rapid and dramatic events could mean big banks get bigger, smaller banks may struggle to keep up and more regional lenders may close.

“People are actually moving their money around, all of these banks are going to look fundamentally different in three months, six months,” said Keith Noreika, vice president of Patomak Global Partners and a Republican former US comptroller of the currency.