Crunch time for Credit Suisse talks as UBS seeks Swiss assurances

Authorities were scrambling to rescue Credit Suisse on Sunday before financial markets reopen as UBS AG sought $6 billion from the Swiss government as part of a possible purchase of its rival, a person with knowledge of the talks said.

A crisis of confidence has rocked 167-year-old Credit Suisse, among the world's largest wealth managers, in the wake of the collapse of U.S. lenders Silicon Valley Bank and Signature Bank.

As one of 30 global systemically important banks, Credit Suisse's failure would ripple throughout the entire financial system.

"The last days of Credit Suisse", proclaimed the front page of Swiss newspaper NZZ am Sonntag over an illustration of the bank's headquarters in flames.

While regulators want a resolution before markets reopen on Monday, one source cautioned the talks are encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combine.

The guarantees UBS is seeking would cover the cost of winding down parts of Credit Suisse and potential litigation charges, two people told Reuters.

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

The frenzied weekend negotiations follow a brutal week for banking stocks and efforts in Europe and the United States to shore up the sector. U.S. President Joe Biden's administration moved to backstop consumer deposits while the Swiss central bank lent billions to Credit Suisse to stabilise its shaky balance sheet.

UBS was under pressure from the Swiss authorities to take over its local rival to get the crisis under control, two people with knowledge of the matter said.

The plan could see Credit Suisse's Swiss business spun off, while Bloomberg reported that the takeover talks were throwing into doubt plans to hive off its investment bank under the First Boston brand.

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

U.S. authorities are working with their Swiss counterparts to help broker a deal, Bloomberg reported, while Sky News said the Bank of England has indicated to international counterparts and to UBS that it would back the proposed takeover of Credit Suisse, which counts Britain as a key market.

FORCEFUL RESPONSE

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

There have been multiple reports of interest for Credit Suisse, including Deutsche Bank considering buying some of its assets.

The failure of California-based Silicon Valley Bank brought into focus how a relentless campaign of interest rate hikes by the U.S. Federal Reserve and other central banks - including the European Central Bank on Thursday - was pressuring the banking sector.

Efforts by some U.S. regional banks to raise capital and allay fears about their health are running up against concerns about looming losses in their assets, sources told Reuters.

For the sake of financial stability, financial industry executives have called on the Federal Reserve to pause its monetary policy tightening.

SVB and Signature's collapses are the largest bank failures in U.S. history behind the demise of Washington Mutual during the global financial crisis in 2008. U.S. Senator Elizabeth Warren, who is pushing tighter banking regulation, has called for an investigation into the two failures, the Wall Street Journal reported.

Banking stocks globally have been battered with the S&P Banks index (.SPXBK) falling 22% in its largest two-week loss since the pandemic shook markets in March 2020.

U.S. banks have sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days and big lenders threw a $30 billion lifeline to smaller lender First Republic (FRC.N).

First Citizens BancShares (FCNCA.O) is evaluating an offer for SVB along with at least one other suitor, while the Mid-Size Bank Coalition of America asked regulators to extend federal insurance to all deposits for the next two years, Bloomberg reported.

In Washington, focus has turned to greater oversight to ensure that banks and their executives are held accountable with Biden calling on Congress to give regulators greater power over the sector.

The swift and dramatic events may mean big banks get bigger, smaller banks may strain to keep up and more regional lenders may shut.

"People are actually moving their money around, all 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 U.S. comptroller of the currency.