Report: Credit Suisse could merge with rival UBS

Credit Suisse Group AG (ETR: CSX) is under immense pressure to announce an overhaul plan after a multi-billion dollar hit from the Archegos and Greensill scandals. Reuters cited anonymous sources on Friday as it reported that a new strategic direction for the investment bank could push it into a merger with the rival, UBS Group AG (SWX: UBSG).

The risk of a foreign hostile takeover

According to the sources, Credit Suisse’s top management warns that investors might demand a break-up. The flagship Swiss lender has also tanked sharply in the stock market since late March that further makes it a suitable target for a foreign hostile takeover. One of the people familiar with the matter told Reuters:

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

“Credit Suisse needs a merger deal right away. There is a growing concern in Zurich that activist investors will go after them if they standstill. A merger with UBS would be more palatable. The Swiss establishment is aware that without a domestic merger, Credit Suisse will disappear in foreign hands.”

If Credit Suisse combines with UBS, the new joint bank will be valued at more than $8.5 billion with a workforce of over 110,000 employees – a dominant position that will invite further demands from regulators for approval.

To satisfy competition concerns, the lender could spin off its local Swiss bank. Credit Suisse’s senior management is likely to meet next week. Other options on the table to be discussed include offloading the asset management business and the sale of the U.S. investment bank.

UBS CEO doesn’t like the idea of merging with Credit Suisse

CEO Ralph Hamers of UBS Group has already shunned the idea of merging with Credit Suisse earlier this year, saying UBS prioritises organic growth. As per Reuters’ sources, discussions at Credit Suisse are only in the early phase at the moment, and the restructuring decisions are yet to be finalised.

Both Credit Suisse and UBS declined to divulge any further information on Friday. The news comes months after Credit Suisse said it swung to a net loss in the first quarter due to the recent scandals.

Credit Suisse was more than 1% up in premarket trading on Friday and jumped another 1% on market open. The stock is down more than 25% from its year-to-date high in early March. Credit Suisse is now valued at $28.50 billion and has a price to earnings ratio of 22.90.