It could be another do or die moment for Wall Street and global markets on Monday if one enormous European bank deal falls apart.
Swiss regulators have reportedly helped to hammer out a deal for UBS Group AG to buy rival Credit Suisse AG — an all-share agreement valued at $1 billion that’s expected to be finalized by Sunday evening.
That’s according to a Sunday report in the Financial Times, which laid out the offer price as 0.25 Swiss francs a share, well below Credit Suisse’s
Friday closing price of 1.86 Swiss francs. Such a deal would end days of speculation about what would happen to the embattled bank.
Credit Suisse has pushed back at the offer, Bloomberg reported, saying the offer is too low and could hurt shareholders and employees.
One possibility is for UBS to buy Credit Suisse and spin off its Swiss operations to an independent entity, The Wall Street Journal reported on Sunday. UBS would keep Credit Suisse’s wealth management division, the report added, though talks are still in flux.
Observers said if the deal doesn’t go through, markets could be facing fresh chaos in a week that will bring a Federal Reserve meeting and potentially more stress on the U.S. banking side.
“Given the current market environment, a collapse of a financial giant like Credit Suisse would easily jitter U.S. markets. The global financial system is now more connected than ever, and with current market fears a headline in Europe will move U.S. markets,” the Kobeissi Letter’s editor in chief and founder Adam Kobeissi, told MarketWatch.
Credit Suisse stock has lost 25% over the past week — its worst since the 2008 great financial crisis — and trades 71% below where it was a year ago. American depositary receipts of Credit Suisse gained 7% late Friday, and have lost 24% on the week, versus a 1.45 gain for the S&P 500
The possibility of a deal comes days after the Swiss National Bank was forced to provide an emergency credit line of 50 billion Swiss francs, ($54 billion), to Credit Suisse last week amid stress on the global banking sector that began with the failure of three U.S. banks.
Shares of Credit Suisse reached record lows in recent sessions after its biggest investor said it would not provide any further capital and the lender’s chair admitted that wealth management clients continued to leave the investment bank.
has also attached a clause that allows for the deal to be voided if its credit defaults surge by 100 basis points or more, the report said, citing four people close to the situation.
In a rush to get a deal finalized before markets open in Monday, Swiss regulators are attempting to change a law that allows for a six-week consultation period with shareholders. Many stockholders are expected to be left with losses, given the price tag on the deal.
Sources told the FT that U.S. authorities have also been involved in talks for two of Switzerland’s biggest banks to combine, seen as the only means of saving Credit Suisse. Regulators from the U.K. were also involved. The deal’s price tag also doesn’t include any extra provisions from the Swiss National Bank to push it through.
Neither bank, nor the Swiss National Bank nor market regulator Finma would comment to the Financial Times.
UBS is ultimately planning for Credit Suisse to represent a third of its business. But the union would still create one of the biggest global systemically important financial institutions in Europe — UBS has $1.1 trillion total assets on its balance sheet and Credit Suisse has $575 billion.
Credit Suisse shareholders have endured a series of scandals that has resulted in five consecutive losing quarters, and outflows of about $100 billion from its wealthy clients in the fourth quarter.The lender admitted to material financial control problems in its annual report last week.
Kobeissi said if a deal isn’t in place before the market opens on Monday, expect “more fuel to the fire.
“The current offer of $1 billion for Credit Suisse, which is $0.27 per share, is an 87% discount to Friday’s closing price. This alone is enough to spook investors which now fear that their stock is worth significantly less than what they previously expected, especially as no other bidders have emerged for Credit Suisse,” he said.
“This is very much like JP Morgan’s offer for Bear Stearns in 2008 which was $2/share or a 93% discount. We believe the only solution to stop the panic in markets and at the banks is a temporary backstop of all bank deposits in the U.S. by the FDIC. Otherwise, once one bank is saved, the next one comes into question,” Kobeissi said.
U.S. Federal authorities on Thursday organized major banks to infuse $30 billion into First Republic Bank
and stave off a fourth banking collapse, following the failures of Silicon Valley Bank, Signature Bank and Silvergate Bank over the past week .
Read: From SVB’s sudden collapse to Credit Suisse’s fallout: 8 charts show turbulence in financial markets
Still ahead for investors this week is a Federal Reserve meeting. Markets are bracing for the Tuesday-Wednesday policy meeting. In fed funds futures traders now see a 75.3% chance of a 25 basis point rate hike on Wednesday, owing to inflation worries.
Read: What it may take to calm banking sector jitters: time, and a Fed rate hike.