Credit Suisse weighs survival options, under pressure to merge with UBS

By Oliver Hirt, Stefania Spezzati and Tom Sims

(Reuters) – Credit Suisse Group AG began a make-or-break weekend after some rivals grew cautious in their dealings with the bank and regulators urged it to pursue a deal with Swiss rival UBS AG.

According to people familiar with the matter, Credit Suisse Chief Financial Officer Dixit Joshi will be joined by his teams over the weekend in order to evaluate strategic options for the bank.

The bank, which dates back to 167 years old, was the most affected by the turmoil caused by the collapse of U.S. banks Silicon Valley Bank and Signature Bank. This week saw the bank tap $54 billion in central banking funding.

Credit Suisse lost a quarter its market value on Friday night, following wild swings this week in its share prices.

Swiss regulators have encouraged UBS and Credit Suisse to merge in an effort to stop the crisis. One source claimed that neither bank wanted to do so. According to the source, the regulators don’t have the power or authority to force the merger.

The Financial Times reported that the boards of UBS (and Credit Suisse) were likely to meet separately this weekend.

Credit Suisse and UBS declined comment.

As executives debated the future of Switzerland’s largest lenders, the mood was quiet in Switzerland, long a symbol for stability banking.

“Banks in permanent stress” Read the headline on the Neue Zuercher Zeitung front page.

Five people who have direct knowledge of the matter said that at least four of Credit Suisse’s main rivals, including Societe Generale SA or Deutsche Bank AG, have placed restrictions on trades involving the Swiss bank and its securities.

“The Swiss central bank stepping in was a necessary step to calm the flames, but it might not be sufficient to restore confidence in Credit Suisse, so there’s talk about more measures,” Frederique Carrrier, RBC Wealth Management’s head of investment strategy, said:

As policymakers, including the European Central Bank and the U.S. President Joe Biden, sought to reassure investors as well as depositors that the global banking system was safe, Credit Suisse is being bolstered. However, there are still concerns about wider problems in the sector.

Graphic: Credit Suisse and First Republic Bank https://fingfx.thomsonreuters.com/gfx/mkt/znvnblzmrvl/Pasted%20image%201679097444078.png

This week, the U.S. government provided $30 billion of emergency liquidity to First Republic, a smaller lender. In recent days, U.S. banks sought record $153 billion from the Federal Reserve for emergency liquidity.

This is reflected in the “funding and liquidity strains on banks, driven by weakening depositor confidence,” Moody’s Ratings Agency, which downgraded this week its outlook on the U.S. bank system to negative, said Moody’s

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

Biden called for Congress to give regulators more power, including higher fines and clawing back funds. He also asked Congress to ban officials from banks that have failed.

Some Democratic legislators asked regulators to investigate Goldman Sachs’ role in SVB’s collapse. The office of Representative Adam Schiff said that.

MARKET TROUBLES LINGER

Globally, banking stocks have suffered since the collapse of Silicon Valley Bank. This raises questions about other weaknesses within the financial system.

U.S. regional banks shares plunged sharply Friday, and the S&P Banks Index suffered its worst two-week loss since March 2020 when the pandemic that shook markets caused a panic. It lost 21.5%.

First Republic Bank ended Friday at 32.8%. This brings its loss for the last 10 sessions to over 80%.

First Republic was saved by the support of some of the most prominent names in U.S. banks, but investors were surprised at First Republic’s disclosures about its cash position and how much it needed for emergency liquidity.

INTEREST RATES RISK

SVB’s failure brought to light how the relentless campaign of interest rates increases by the U.S. Federal Reserve (and other central banks) was putting pressure upon the banking sector.

Many regulators and analysts have stated that SVB’s decline was due to its tech-focused business model. The wider banking system, however, was stronger because of reforms made in the years following global financial crisis.

A senior official from China’s central banking said that high interest rates in major developed countries could cause financial system problems.

(Reporting by Reuters bureaus. Writing by Lincoln Feast, Toby Chopra. Editing by William Mallard and Kirsten Donovan.

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