Credit Suisse faces crucial weekend with its future in balance

(Reuters) - Credit Suisse Group AG CSGN.S headed into a make-or-break weekend after some rivals grew cautious in their dealings with the struggling Swiss lender, and its regulators urged it to pursue a deal with UBS AG UBSG.S.

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 yesterday.

Swiss regulators are encouraging UBS and Credit Suisse to merge, one source with knowledge of the matter said, but added that both banks did not want to do so. The regulators do not have the power to force the merger, the person said.

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

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

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

In the latest sign of its mounting troubles, at least four major banks, including Societe Generale SA SOGN.PA and Deutsche Bank AG DBKGn.DE, have put restrictions on their trades involving the Swiss lender or its securities, according to five sources with direct knowledge of the matter.

“Credit Suisse is a very special case,” said Frédérique Carrier, head of investment strategy at RBC Wealth Management. “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.”

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

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

That surpassed a previous high set during the most acute phase of the financial crisis some 15 years ago.

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 - who earlier this week promised Americans that their deposits are safe - on Friday called on Congress to give regulators greater power over the banking sector, including leveraging higher fines, clawing back funds and barring officials from failed banks, a White House statement said.

A group of Democratic U.S. lawmakers also asked regulators and the Justice Department for a probe into the role of Goldman SachsGS.N in the collapse of SVB, the office of U.S. Representative Adam Schiff said on Friday.

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

Shares in Credit Suisse, Switzerland’s second-largest bank, closed down 8% on Friday, with Morningstar Direct saying Credit Suisse had seen more than $450 million in net outflows from its U.S. and European managed funds from March 13 to 15.

Analysts, investors and bankers think the loan facility from the Swiss central bank which made it the first major global bank to take up an emergency lifeline since the 2008 financial crisis - only bought it time to work out what to do next.

Increased financial volatility and uncertainty about Credit Suisse’s future may cloud Switzerland’s economic outlook, but the liquidity support provided to the bank is unlikely to impact the country’s public finances, DBRS Morningstar wrote in a note to investors.