Swiss Government Holds Talks on Options to Stabilize Credit Suisse


What You Need to Know

  • One long-shot idea is a tie-up with larger Swiss rival UBS Group, said people familiar with the matter.

  • Credit Suisse, which traces its roots back to 1856, is Switzerland’s second-largest lender and has been pummeled over the last several years by a series of blowups, scandals, leadership changes and legal issues.

Swiss authorities and Credit Suisse Group AG are discussing ways to stabilize the bank, according to people familiar with the matter, after comments by its biggest shareholder and broader financial market jitters helped trigger a plunge in the stock on Wednesday.

In a first salvo to shore up confidence in the battered lender, Switzerland’s central bank and financial regulator said the bank will receive a liquidity backstop if needed, according to a late statement on Wednesday. The regulator confirmed Credit Suisse meets the capital and liquidity requirements it imposes on systemically important banks.

The firm’s leaders and government officials had discussed such a public show of support and a backstop as potential measures, Bloomberg reported earlier.

Other options included a separation of the Swiss unit and a long-shot orchestrated tie-up with larger Swiss rival UBS Group AG, according to people with knowledge of the matter, cautioning that it’s unclear whether these steps will actually be executed.

The Swiss government has also floated the idea of acquiring a stake in Credit Suisse as part of a capital increase if necessary, two of the people said.

While scenario planning has been going on for some time, urgency has been added after the firm’s shares plummeted to a record low and the cost to insure the bank’s debt reached crisis levels. T

he lender had earlier asked the Swiss central bank and regulator Finma for public statements of support, according to the people, a request the authorities heeded around half past 8 p.m. local time.

Spokespeople for Credit Suisse, UBS and the Swiss National Bank declined to comment. The nation’s finance ministry didn’t respond to requests for comment.

Stock Issues

Credit Suisse’s stock plunged as much as 31% on Wednesday, while some of its bonds dropped to levels that signal financial distress, as the Saudi National Bank ruled out increasing its stake because of regulatory constraints.

The plunge helped drag all European lenders lower as investors were quick to move away from banking risk after turmoil induced by the collapse of Silicon Valley Bank.

Chief Executive Officer Ulrich Koerner on Tuesday preached patience and said the bank’s financial position is sound. He pointed to the firm’s liquidity coverage ratio, which indicates the bank can handle more than a month’s worth of outflows in a period of stress.

Chairman Axel Lehmann had said at a conference on Wednesday that government assistance “isn’t a topic” and the firm’s efforts to return to profitability aren’t comparable to the severe liquidity issues hitting smaller lenders in the U.S.

UBS CEO Ralph Hamers on Wednesday declined to answer any “hypothetical” questions about Credit Suisse and only said he’s “focused on our own strategy.”

Recent Troubles

Switzerland’s second-largest lender, which traces its roots back to 1856, has been pummeled over the last several years by a series of blowups, scandals, leadership changes and legal issues.

The company’s 7.3 billion franc ($7.9 billion) loss last year wiped out the previous decade’s worth of profits, and the bank’s second strategy pivot in as many years has so far failed to win over investors or halt client outflows.

Clients pulled more than $100 billion of assets in the last three months of last year as concerns mounted about its financial health, and the outflows have continued even after it tapped shareholders in a 4 billion franc capital raise.

Credit Suisse’s funding costs have become so high it either needs to raise more capital or face a break up, Morningstar analyst Johann Scholtz said in a note on Wednesday. The bank could need another rights issue or the alternative would be “a breakup” of the bank in which its various business lines such as the Swiss unit, asset manager and wealth management divisions could be “sold or listed separately.”

The Swiss unit, which lends to the nation’s corporations and manages the money of wealthy individuals, has been a relative bastion of stability.

It’s the only one of Credit Suisse’s four divisions to be profitable each of the last three years and produced 1.5 billion francs of pretax income in 2022.