Credit Suisse meets to weigh options, under pressure to merge with UBS

The 167-year-old bank is the biggest name ensnared in market turmoil.

(Reuters) - Credit Suisse Group AG began a make-or-break weekend after some rivals grew cautious in their dealings with the bank as regulators urged it to pursue a deal with Swiss rival UBS AG.

Credit Suisse Chief Financial Officer Dixit Joshi and his teams will hold meetings over the weekend to assess strategic scenarios for the bank, people with knowledge of the matter said on Friday. 

The 167-year-old bank is the biggest name ensnared in market turmoil unleashed by the collapse of U.S. lenders Silicon Valley Bank and Signature Bank over the past week, forcing the Swiss bank to tap $54 billion in central bank funding.

Swiss regulators are encouraging UBS and Credit Suisse to merge but neither bank wanted to do so, one source said. The regulators do not have the power to force the merger, the person said.

The boards of UBS and Credit Suisse were expected to separately meet over the weekend, the Financial Times said,

Credit Suisse shares jumped 9 per cent in after-market trading following the FT report. Credit Suisse and UBS declined to comment.

In the latest sign of its mounting troubles, at least four major banks, including Societe Generale SA and Deutsche Bank AG, have put restrictions on their trades involving Credit Suisse or its securities, five people with direct knowledge of the matter told Reuters.

"The Swiss central bank stepping in was a necessary step to calm the flames, but it might not be sufficient to restore confidence in Credit Suisse, so there’s talk about more measures," said Frederique Carrier, head of investment strategy at RBC Wealth Management.

Efforts to shore up Credit Suisse come as policymakers including the European Central Bank and U.S. President Joe Biden sought to reassure investors and depositors the global banking system is safe. But fears of broader troubles in the sector persist.

Already this week, big U.S. banks provided a $30 billion lifeline for smaller lender First Republic, while U.S. banks altogether sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days.

This reflected "funding and liquidity strains on banks, driven by weakening depositor confidence," said ratings agency Moody's, which this week downgraded its outlook on the U.S. banking system to negative.

In Washington, focus turned to greater oversight to ensure that banks - and their executives - are held accountable.

Biden called on Congress to give regulators greater power over the banking sector, including imposing higher fines, clawing back funds and barring officials from failed banks.

Some Democratic lawmakers asked regulators and the Justice Department to probe the role of Goldman Sachs in SVB's collapse, said the office of Representative Adam Schiff.

MARKET TROUBLES LINGER

Banking stocks globally have been battered since Silicon Valley Bank collapsed, raising questions about other weaknesses in the financial system.

U.S. regional bank shares fell sharply on Friday and the S&P Banks index tumbled 4.6 per cent, bringing its decline over the past two weeks to 21.5 per cent, its worst two-week calendar loss since the Covid-19 pandemic shook markets in March 2020.

First Republic Bank ended Friday down 32.8 per cent, bringing its loss over the last 10 sessions to more than 80 per cent. Moody's downgraded the bank's debt rating after the market close.

While support from some of the biggest names in U.S. banking prevented First Republic's collapse this week, investors were startled disclosures on its cash position and how much emergency liquidity it needed.

SVB Financial Group filed for bankruptcy court-supervised reorganisation, days after regulators took over its Silicon Valley Bank unit.

Regulators had asked banks interested in buying SVB and Signature Bank to submit bids by Friday, people familiar with the matter said.

Regulators are considering retaining ownership of securities owned by Signature and SVB to allow smaller banks to participate in auctions for the collapsed lenders, a source familiar with the matter said.