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Credit Suisse rocked by losses post-Silicon Valley as acquisition talks loom

Swiss bank USB is leading talks to take over Credit Suisse in whole or in part, according to a report published by the Swiss bank. Financial Times.

Credit Suisse, the second largest Swiss bank, faced pressure this week after the collapse of two US lenders caused a crisis in the sector. And with the closing of financial markets, on Friday, the bank’s shares had fallen by 8 percent, according to Agence France-Presse.

The Swiss Central Bank and the Financial Markets Supervisory Authority told their counterparts in the United States and Britain that their “first” plan to end the confidence crisis facing Credit Suisse is to merge it with USB, according to the Financial Times, citing unnamed sources.

The source stated that the Swiss Central Bank “wants lenders to agree on a simple and direct solution before the opening of financial markets on Monday,” acknowledging at the same time that “there is no guarantee” of reaching an agreement.

USB wants to assess the risks a full or partial takeover of its competitor could pose to its business, another source told the newspaper.

The Swiss Central Bank and Credit Suisse declined to respond to AFP’s request for comment, as did the Financial Times, while USB and the watchdog did not immediately respond.

Credit Suisse, which has been in difficulty for two years, was seen as a weak link in the banking sector due to a number of scandals and a major restructuring program launched last October.

Its market value took a big hit this week amid fears of a contagion from the collapse of two US banks, Silicon Valley Bank and Signature Bank. This is in addition to the publication of its annual report, which indicated “fundamental weaknesses” in its internal controls.

However, its shares fell sharply, on Wednesday, after the National Bank of Saudi Arabia, its main shareholder, refused to provide more financial assistance to the troubled bank due to regulatory controls, according to the French Agency.

By Wednesday, the Swiss central bank had pledged to lend Credit Suisse $53.9 billion in the face of pressure.

According to Reuters, the Swiss Central Bank pumped, on Thursday, an amount of $ 54 billion to support liquidity in the bank after the decline in its shares and bonds, which raised concerns about a global banking crisis.

Analysts from JPMorgan had put forward the idea of ​​”USP” acquiring Credit Suisse, considering it the “most likely” scenario.

The idea of ​​merging the largest Swiss banks often arises, but it is generally rejected against the backdrop of competition and the risks it poses to the stability of the Swiss financial system, given the size of the bank that will result from that merger, according to AFP.

How did the crisis reach Switzerland?

Reuters points to several years of “excesses”, senior management changes, billions of dollars in losses and a strategy that led to the chaos of the 167-year-old Swiss bank.

The sale of Credit Suisse shares began during 2021, due to losses linked to the collapse of the investment fund Archegos and Greensill Capital.

And in January 2022, Antonio Horta Osorio resigned as chairman of the board for violating Corona rules, just eight months after he was appointed to fix the ailing bank, according to Reuters.

Changes in Credit Suisse share price | Photo credit: France Press

Reuters says that later in July, the new CEO and restructuring expert Ulrich Korner revealed the bank’s strategy review, but failed to gain investor confidence, after which an unfounded rumor about the bank’s imminent default during the fall led to fear of customers and some of them left the bank.

Then, Credit Suisse noted in February that customers withdrew 110 billion Swiss francs ($119 billion) of funds over the past quarter, and the bank posted its biggest annual loss of 7.29 billion Swiss francs since the financial crisis, according to Reuters.

Credit Suisse shares fell more than 30 percent on Wednesday, after the main shareholder, Al-Ahly Bank of Saudi Arabia, refused to provide more financial aid to the ailing Swiss banking giant.

The market value of the “Credit Suisse” bank witnessed a sharp decline this week due to fears of transmission of the collapse of two US banks, in addition to its annual report, which indicated “fundamental weaknesses.”

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