After 48 hours of what one certainly imagines were tense negotiations with Swiss authorities, UBS offered to buy Credit Suisse for up to $1 billion. Or perhaps it’s more apt to say for “just” $1 billion.
As the discussions unfolded, media reports suggested UBS made a number of demands+, including indemnity from costs associated with potential litigation and losses related to legacy issues at Credit Suisse, where a slow-burning existential crisis finally crescendoed in an outright panic following an errant remark from the chairman of the bank’s largest shareholder.
According to the FT, UBS’s offer entailed a price of CHF0.25 per share, payable in UBS stock, and included a provision which allows the bank to walk away in the event its CDS spreads widen by 100bps or more. The problem with such a clause is that it effectively gives markets a veto, and more importantly, opens the door to a disorderly collapse of Credit Suisse, whose CDS spreads ballooned last week, particularly the one-year tenor, indicative of counterparty worries. The bank’s CDS curve was deeply inverted.
The tie-up appeared to put Credit Suisse’s CS First Boston spinoff in limbo. As part of the bank’s dramatic overhaul announced in October, Michael Klein sold his firm to Credit Suisse (the deal hasn’t closed) and was poised to lead the recreated CS First Boston as an independent capital markets and advisory bank with an old school partnership structure. An outside investor, never identified, had offered to put $500 million behind the business.
Other parties to the weekend discussions with UBS included authorities and regulators in the US and the UK. Both banks have businesses in the US, and both are systemically important globally, not just in Switzerland.
Some reports suggested UBS was keen to avoid being subjected immediately to any new capital requirements associated with a deal. Instead, sources told the financial media, the bank wanted any such regulatory demands implemented in stages.
All indications were that Swiss officials saw a domestic solution as preferable and wanted a deal done by Sunday evening at the latest — so before markets opened.
Underscoring the urgency of the situation, the FT‘s reporting indicated that Swiss authorities planned to alter the nation’s laws such that a shareholder vote would be bypassed. The CHF0.25 price represented a fraction of Credit Suisse’s closing price on Friday.
History doesn’t repeat, but it does rhyme. The deal comes 15 years, almost to the day, after the US government facilitated Bear Stearns’s sale to JPMorgan.