UBS offers to buy Credit Suisse for up to $1b, Financial Times reports

UBS Group AG UBSG.S has offered to buy Credit Suisse CSGN.S for up to $1 billion, with the Swiss government planning to change the country's laws to bypass a shareholder vote on the transaction, the Financial Times reported on Sunday.

Credit Suisse and UBS declined to comment, and the Swiss government did not immediately respond to a request for comment.

Authorities have been scrambling to rescue the 167-year-old bank, among the world's largest wealth managers, before financial markets reopen on Monday. As one of 30 global systemically important banks, Credit Suisse's failure would ripple throughout the entire financial system.

The Financial Times reported that the all-share deal was set to be signed as soon as Sunday.

Citing people familiar with the matter, it said an offer was made Sunday morning at 0.25 Swiss francs ($0.27) per Credit Suisse share, well below Friday's closing price of 1.86 Swiss francs and all but wiping out the bank's existing shareholders.

UBS has also insisted on a 'material adverse change' that voids the deal in the event its credit default spreads jump by 100 basis points or more, the report added. However, it noted that the situation was fast-moving and there was no guarantee that terms will remain the same or that a deal would be reached.

A person with knowledge of the talks earlier told Reuters that UBS was seeking $6 billion from the Swiss government as part of a possible purchase of its rival.

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

One source previously cautioned the talks were encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combine. The Swiss Bank Employees Association on Sunday called for the immediate creation of a task force to deal with the risk to jobs.

The frenzied weekend negotiations over the future of Credit Suisse follow a brutal week for banking stocks and efforts in Europe and the United States to shore up the sector following the collapse of US lenders Silicon Valley Bank and Signature Bank.

US 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.

US 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.

"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.

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 - was pressuring the banking sector.

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

US 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 US comptroller of the currency.