Switzerland’s biggest bank, UBS, is in advanced talks to buy all or part of its troubled rival Credit Suisse.
Credit Suisse, the second largest Swiss bank, is facing a crisis of confidence and its shares have fallen sharply in recent days, sending ripples of concern through the markets.
According to the Financial Times UBS is offering to pay up to $1bn (£820m) for Credit Suisse.
Regulators are trying to facilitate a deal before markets reopen on Monday.
The trouble at Credit Suisse, combined with the failure of two smaller US banks during the last two weeks, have thrown the health of the global financial system into doubt.
Credit Suisse is one of around 30 banks worldwide deemed too big to fail because they are of such importance to the banking system.
But the 167-year-old institution is loss-making and has faced a string of problems in recent years, including money laundering charges.
An emergency $54bn (£44.5bn) lifeline from the Swiss National Bank on Wednesday failed to reassure markets and Credit Suisse shares tumbled 24%, prompting a wider sell-off on European markets.
A deal could be signed as soon as Sunday evening, according to the FT, which first reported that regulators and the Swiss National Bank were facilitating talks between the two Swiss banking giants.
The deal currently believed to be on the table would value Credit Suisse shares at less than a seventh of the price they were on Friday. However the FT said terms could change and a deal had not yet been reached.
UBS shareholders would normally have six weeks to consider a deal on this scale, but the FT says the Swiss authorities are planning to change the country’s laws to bypass a shareholder vote on the transaction.
Bank of England officials have confirmed they are in close contact with their counterparts at the Swiss National Bank while regulators and management discuss Credit Suisse’s future. The UK Treasury is also monitoring the situation.
The deal would amount to a significant intervention from the Swiss authorities, said Mohamed El-Erian, chief economic advisor to German financial services firm Allianz.
“This is not a voluntary action, this is a shotgun wedding and it’s being done in order to restore financial stability,” Mr El-Erian told the BBC. “Without it Credit Suisse may end up in a death spiral, in which it finds it much harder to undertake its banking activities.
“That could raise questions about other banks at a time when there are also banking concerns in the United States.”
Mr El-Erian said the current turmoil could lead to banks becoming more “risk averse”, leading to a fall in credit availability.
But that amounted to a “headwind” for the global economy, rather than something like the sudden stop experienced during the 2008 financial crisis, which was “in a completely different league” to today’s problems, he said.
UBS is said to have asked the Swiss government to cover about $6bn (£4.9bn) in costs if it were to buy Credit Suisse, according to sources quoted by Reuters.
Credit Suisse reported a loss of 7.3bn Swiss francs ($7.9bn; £6.5bn) in 2022 – its worst year since the financial crisis of 2008 – and has warned it does not expect to be profitable until 2024.
UBS, however, made a profit of $7.6bn in 2022.
Any deal may also result in significant job losses.
As well as being a domestic bank with 95 branches, Credit Suisse has a global investment banking operation and manages the assets of rich clients.
At the end of last year Credit Suisse had a global staff of 50,480, including 16,700 in Switzerland, though 9,000 jobs were to be axed, the Swiss broadcaster SRF reports.
Source : BBC