UBS on verge of taking over stricken Credit Suisse for $2bn

UBS is on the verge of taking over Swiss rival Credit Suisse for about $2bn (£1.6bn), after frantic weekend talks to avert a collapse that experts feared could trigger a new global banking crisis.

Negotiations involving the Swiss government continued through Sunday, after a $54bn loan to Credit Suisse from the Swiss central bank had failed to halt the precipitous slide in its share price.

Coupled with last week’s collapse of Silicon Valley Bank, whose UK arm had to be taken over by HSBC for the nominal sum of £1, the crisis engulfing Credit Suisse had fuelled anxiety about contagion in the international banking system.

But UBS is understood to have agreed to buy Credit Suisse in an all-share deal worth between $1.7bn and $2bn, depending on whether parts of the stricken bank are hived off.The agreement of terms before markets open on Monday morning is particularly important because Credit Suisse, which employs 5,000 people in the UK, is categorised by the global Financial Stability Board as one of just 30 “systemically important” lenders in the global banking system.

The Swiss government brokered the deal, according to reports in the Financial Times, and will change the law to allow it to go ahead without a shareholder vote. UBS reportedly bid $1bn at first but this was rejected by the board of Credit Suisse.

The price tag is still well below its stock market value, even after it crumbled to just $8.6bn (£7bn), down 86% since February 2021, after a prolonged series of scandals, compliance problems and bad financial bets.

In 2014, the bank pleaded guilty to allowing US clients to evade their taxes, leading to a $2.6bn fine from the US government and New York financial regulators.

In 2020, Credit Suisse’s then chief executive, Tidjane Thiam, resigned after two corporate espionage scandals involving senior employees, while the bank also lost $5.5bn on the collapse of US hedge fund Archegos Capital a year later.

The storm of negative publicity worsened last year after the Guardian’s revelations, based on a leak, that fraudsters, criminals and corrupt politicians had stored £80bn with the Zürich-based lender.

Customers began withdrawing billions of pounds from the bank last year in response to rumours about its financial health, leading to the bank’s worst full-year loss since the 2008 banking crisis.

In tandem with the failure of Silicon Valley Bank earlier this month, Credit Suisse’s travails have stoked fears that the international banking system could once again fall prey to the contagion seen in 2008, with ramifications for the wider global economy.

The economist Nouriel Roubini, known as Dr Doom after being credited with predicting the 2008 financial crisis, said that any potential failure by Credit Suisse could prove to be a “Lehman moment”, a reference to the collapse of Lehman Brothers in September 2008, widely seen as the proximate cause of the crash.

Talks in Switzerland reportedly involve the government and regulators, with one option on the table involving a $100bn state-backed liquidity guarantee for UBS.