Crunch time for talks with Credit Suisse as UBS seeks Swiss guarantees

Talks about bailing out Credit Suisse rolled into Sunday as UBS asked for $6 billion from the Swiss government to cover costs if it bought its struggling rival, a person with knowledge of the talks said.

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

While regulators want a resolution before markets reopen on Monday, a source warned that the talks are running into significant obstacles and that 10,000 jobs may need to be cut if the two banks merge.

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

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

The frenetic weekend negotiations follow a brutal week for banking stocks and efforts in Europe and the US to support the sector. US President Joe Biden’s administration backstopped consumer deposits, while the Swiss central bank lent billions to Credit Suisse to stabilize its shaky balance sheet.

UBS was under pressure from Swiss authorities to acquire its local rival in order to bring the crisis under control, two people with knowledge of the matter said. The plan could lead to a privatization of Credit Suisse’s Swiss operations.

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

U.S. authorities are involved and are working with their Swiss counterparts to help seal a deal, Bloomberg News reported, also citing those familiar with the matter.

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

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

UK Chancellor of the Exchequer Jeremy Hunt and Bank of England Governor Andrew Bailey are also in regular contact over the weekend over 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 last week. The bank was forced to tap $54 billion in funding from the central bank as it attempted to recover from a series of scandals that have eroded investor and customer confidence.

It ranks among the world’s largest asset managers and is considered one of the 30 globally systemically important banks – the failure of any of them would ripple through the entire financial system.

There were multiple 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 rival bid for the bank.

The bankruptcy of California-based Silicon Valley Bank highlighted how a relentless campaign of rate hikes by the US Federal Reserve and other central banks – including the European Central Bank on Thursday – put pressure on the banking sector.

The SVB and Signature collapses are the largest bank failures in U.S. history following the collapse of Washington Mutual during the 2008 global financial crisis.

First Citizens BancShares is evaluating a bid for SVB and at least one other candidate is seriously considering a bid, Bloomberg News reported Saturday.

Banking stocks worldwide have been battered since the collapse of the SVB, with the S&P Banks index falling 22%, the biggest loss in two weeks since the pandemic shook markets in March 2020.

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

The Mid-Size Bank Coalition of America has asked regulators to expand 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 shifted to more oversight to ensure that banks and their executives are held accountable.

Biden called on Congress to give regulators more power over the industry, including by imposing higher fines, recovering funds and barring officials from failing banks.

The rapid and dramatic events could lead to big banks getting bigger, smaller banks struggling to keep up and more regional lenders closing their doors.

“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. currency controller.