UBS in discussions to purchase Credit Suisse.

UBS in discussions to purchase Credit Suisse.

The Swiss government is urging for a merger to be implemented in order to address the lack of trust in the banking industry of the nation.

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Numerous individuals who have been informed about the discussions have revealed that UBS is currently engaged in talks to acquire either all or some of Credit Suisse. The boards of Switzerland's two largest lenders are scheduled to meet separately over the weekend to assess the possible banking merger, which would be the most significant in Europe since the financial crisis.

According to sources, the Swiss National Bank and regulator Finma are leading discussions to boost trust in the banking industry of Switzerland. Their involvement follows the recent emergency injection of a credit line worth SFr50bn ($54bn) by the central bank to Credit Suisse.

In the last few years, there has been a major difference in how well Swiss banks have done in the stock market. UBS shares have increased by approximately 120% within the past three years, but the shares of their smaller competitor have decreased by roughly 70%. UBS is valued at $56.6 billion, while Credit Suisse's value is $8 billion after closing on Friday.

In the year 2022, UBS managed to earn a profit of $7.6bn while Credit Suisse unfortunately faced a loss of $7.9bn, which was equivalent to the total earnings of the past ten years.

On Friday evening, Swiss regulators communicated to their US and UK counterparts that combining the two banks was their primary solution to prevent a decline in investor trust in Credit Suisse, according to an individual familiar with the matter.

There are various alternatives being talked about besides a complete acquisition, according to an additional source. They revealed that the two parties are working to assess any legal limitations in various regions. Furthermore, UBS is examining the possible dangers associated with the proposed arrangement.

As per the source, the Swiss federal reserve wishes for a clear and uncomplicated resolution to be established by the creditors before Monday's market opening. However, it is uncertain whether the UBS shareholders will authorize the arrangement even if it is agreed upon.

Credit Suisse and UBS refrained from providing their input, and so did the Swiss National Bank, the Federal Reserve, and the Bank of England.

If the two banks merged completely, they would form a massive financial institution that would be considered one of the largest and most important in Europe. UBS currently holds $1.1 trillion worth of assets on its balance sheet, while Credit Suisse has $575 billion.

But the enormous deal might be too complex to carry out. The Financial Times stated earlier that there are other alternatives to ponder, such as dividing Credit Suisse and gathering money through a public sale of its Swiss division, while selling the wealth and asset management sections to UBS or other contenders.

UBS has been keeping a close eye out for a potential call from the Swiss government in case of a financial crisis arising from the recent changes made by Credit Suisse. The CEO of Credit Suisse, Ulrich Körner, declared last year that the company would let go of 9,000 employees and divide its investment department into a new establishment, First Boston, under the guidance of their former board member Michael Klein. This move has made some investors hesitant about the future of the company.

Credit Suisse, which has been around for 167 years, may face a takeover bid from its largest competitor, marking the end of a tumultuous three-year period. This period was marked by chaos and scandal, including two crises relating to Greensill Capital and Archegos, both of which crumbled and resulted in losses of billions of dollars within the span of a few weeks in 2021.

The financial institution was penalized for being involved in the $2 billion fraud surrounding the "tuna bonds" in Mozambique. This made it the initial Swiss bank to be found responsible for a corporate wrongdoing. Additionally, it was exposed to have washed funds for a Bulgarian group dealing with cocaine, operated by a retired wrestler.

In the meantime, Credit Suisse has faced major changes in its management. The ex-CEO, Tidjane Thiam, stepped down in 2020 following a scandal involving spying and a conflict with an employee, which caused a stir in Zurich.

After one year, António Horta-Osório took over as chairperson. The ex-Lloyds Bank lead was brought on board to improve the Swiss bank's overall work environment. However, he had to resign in the beginning of 2022 due to his frequent use of the corporate airplane beyond reasonable limits and also for violating Covid-19 quarantine regulations so that he could attend both the finals of the European Football Championship and Wimbledon men's tennis competition on the same day.

More information was gathered for this blog by Robert Smith.

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