Ant Group reportedly outbids Citadel Securities for Credit Suisse's China securities arm

The backstory: Swiss bank Credit Suisse had been having a tough time for a while, dealing with various scandals and headwinds in the banking industry. Last year, things hit a breaking point, and the bank collapsed. To prevent an economic disaster, another Swiss bank called UBS stepped in and bought Credit Suisse for around 3 billion Swiss francs (US$3.2 billion). This move was orchestrated by Swiss authorities to stop things from spiraling out of control.

Now, UBS has a bit of a problem on its hands. The bank needs to sell off the part of Credit Suisse in China that deals with investment banking and brokerage, Credit Suisse Securities China (CSS). Why? UBS already has a similar business in the country, and Chinese regulations say it can only keep one of them. This comes at a tricky time, with China's market facing an economic slowdown and stricter initial public offering (IPO) rules.

Before the merger, CSS was owned mainly by Credit Suisse, with a smaller share held by Founder Securities. Founder agreed to be bought out by Credit Suisse, but the deal is still waiting for approval from Chinese regulators.

More recently: Since last year, UBS has been looking for a buyer for this division. Major players like Citigroup and Citadel Securities have shown interest. Citadel Securities, led by CEO Peng Zhao, reportedly wants to establish a presence in China. But it's not as simple as just finding a buyer. There are other factors at play, like the need for regulatory approval and potential changes within UBS in the wake of the takeover.

The development: Ant Group has reportedly outbid Citadel Securities for Credit Suisse's investment bank arm in China. But insiders speaking with Bloomberg suggested that China prefers foreign buyers for these kinds of deals, and Credit Suisse was initially granted its banking license to boost competition globally. 

So, where does that leave UBS? It's in a tough spot. On one hand, Ant Group's higher bid is tempting. On the other, Citadel's lower offer may be more likely to be approved by regulators since it's a foreign firm. But there's still the worry that Citadel's bid could get the cold shoulder from Credit Suisse's Chinese partner, Founder Securities, leading to delays. To add to the dilemma, UBS is struggling to drum up interest from other big-name firms, thanks to pressure from geopolitical tensions and economic uncertainties.

Key comments:

"We are pleased to see the introduction of the market-making program in China," said Citadel Securities CEO Peng Zhao to Reuters last November. "As the Chinese capital market continues to grow beyond simple stock trading and into more complex products, the concept of market making not only will come naturally but also becomes necessary instead of just adding value from a liquidity perspective." 

"Most other Asian markets are too small or episodic in activity," said Craig Coben, a former Bank of America senior banker in Asia and now a managing director at financial expert witness firm Seda Experts earlier this month, referring to investment banking job cuts in China. "Japan has depth as a developed market, but in most years Greater China revenues have dwarfed Japan by several times. India is growing fast, but fee spreads are tight and it's not close to replacing China."

"The piecemeal rollout of support from mid-year has done little to turn things around. It's clear that China's economy needs extra stimulus," said Harry Murphy Cruise, an economist at Moody's Analytics last month