UBS, Credit Suisse oppose idea of forced combination, sources say

JPMorgan Chase analysts led by Kian Abouhossein are among those saying the bank’s troubles are most likely to end in its takeover, probably by UBS. A tie-up with its larger rival was also one option discussed in talks between Credit Suisse and Swiss authorities recently, people with knowledge of the matter said earlier this week.

Analysts at Keefe, Bruyette & Woods in a note headed “sticking plaster” after the liquidity backstop, said the new measures buy the bank time but a break-up is the most likely solution. Morningstar also said a break-up of the bank would be an alternative to having another capital increase, having raised about US$4 billion from investors late last year.

Credit Suisse could also pursue a break-up of the lender, with the wealth management business going to UBS or another buyer, the Swiss unit being separated as a new entity to protect Swiss deposits and the asset management and investment banking operations being divested or separated, two of the people said.

Still, objections to a potential deal extend beyond the two firms. The Swiss government is also concerned about job losses that would result from a combination, though would prefer a Swiss solution if possible to the situation and is most concerned about protecting local businesses and deposits, two people said. Some of the wealth clients may also oppose a merger with UBS, given the overlap in accounts.

A full-blown combination would be a reversal of years of too-big-to fail rules and would raise antitrust concerns in many business lines. Switzerland has also generally favoured the idea of two global banks whose rivalry has been one of the key drivers of the competitiveness of Switzerland’s financial-services sector. A deal could also lead to higher capital requirements.

UBS CEO Ralph Hamers on Wednesday declined to answer any “hypothetical” questions about Credit Suisse and only said he is “focused on our own strategy.”