UBS and Credit Suisse in merger talks—what will happen next?

UBS is reportedly negotiating to purchase all or parts of Credit Suisse. The separate boards of Switzerland’s two largest lenders will meet over the weekend as part of efforts by the Swiss National Bank and FINMA to bolster confidence in the country’s banking sector, sources familiar with the talks stated.

On Friday evening, Swiss regulators informed their counterparts in the United States and the United Kingdom that a merger between Credit Suisse and another bank was their top priority to restore confidence in the troubled institution. The report further revealed that this was their “Plan A” for stabilizing Credit Suisse.

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The two banks are also reportedly evaluating various other options, exploring the regulatory constraints in different jurisdictions. The Swiss central bank aims to reach a simple agreement before Monday’s market opening. However, there is no guarantee that a final deal will be made.

UBS Group AG and Credit Suisse are opposed to a forced merger. The former prefers to focus on its wealth management strategy and is unwilling to take on any potential risks Credit Suisse may bring.

As the largest Swiss bank, Credit Suisse has been significantly impacted by the recent market downturn following the failure of U.S. lenders SVB and Signature Bank, resulting in a need to borrow up to $54 billion from Switzerland’s central bank for liquidity purposes.

The 167-year-old Credit Suisse has been heavily affected by the market turmoil caused by the collapses of Silicon Valley Bank and Signature Bank in the past week. This forced the Swiss bank to seek out $54 billion in central bank funding, resulting in a 25% drop in share value by Friday night. Swiss regulators attempted to help alleviate the crisis by encouraging UBS and Credit Suisse to merge. However, neither bank has shown any interest in doing so; they do not have the power to force a merger. Nonetheless, steps are being taken to bring stability back into the market.

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