December 2, 2023

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UBS completes the acquisition of Credit Suisse, becoming a wealth management giant

UBS completes the acquisition of Credit Suisse, becoming a wealth management giant
  • UBS completes the acquisition of Credit Suisse
  • New management changes have been announced
  • The Chief Financial Officer of Credit Suisse and the General Council are leaving

ZURICH (Reuters) – UBS Bank (UBSG.S) said on Monday it has completed its emergency takeover of local rival Credit Suisse (CSGN.S), creating a Swiss bank giant with a $1.6 trillion balance sheet and greater power. in wealth management.

Announcing the largest banking deal since the 2008 global financial crisis, UBS CEO Sergio Ermotti and Chairman Colm Kelleher said it would create challenges but also “many opportunities” for customers, employees, shareholders and Switzerland.

The group will oversee $5 trillion in assets, giving UBS a leading position in key markets that it would have taken years to grow in size and reach. The merger also ended Credit Suisse’s 167-year history, which has been marred by scandals and losses in recent years.

After peaking at more than 82 Swiss francs ($90.14) in 2007, Credit Suisse, which has been plagued by scandals and huge losses, has fallen to more lows than ever, closing at less than 1 franc on Monday.

Credit Suisse shares closed up about 1% on the last day of trading, while UBS shares were also up about 0.8%.

The two banks jointly employ 120,000 employees worldwide, although UBS has already said it will cut jobs to reduce costs and take advantage of synergies.

UBS announced a series of management changes including in Credit Suisse AG, which is now a subsidiary that will be run separately.

Of the more than 160 leaders confirmed or appointed today at UBS, more than a fifth have joined from Credit Suisse, according to a UBS spokesperson.

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And Andre Helfenstein, Head of Domestic Business for Credit Suisse, will remain in his role. UBS said, it is examining all strategic options for the unit.

closing rush

UBS agreed on March 19 to buy the lender for an approximate price of 3 billion Swiss francs ($3.32 billion) and up to 5 billion francs of assumed losses in a bailout orchestrated by Swiss authorities to prevent a collapse of customer confidence from prompting Switzerland to say no. 2 banks above the tip.

UBS on Friday terminated an agreement on the terms of a general support of 9 billion Swiss francs ($10 billion) for losses arising from winding up parts of Credit Suisse’s business.

UBS closed the takeover in less than three months β€” a tight timeline given its size and complexity β€” in a race to provide greater certainty to Credit Suisse’s customers and employees and stave off a departure.

Myths have been dismantled

However, the deal, which saw the state fund the bailout, debunked two myths – namely, that Switzerland was entirely predictable and that the banking problems would not take a toll on taxpayers.

The buildings of the Swiss banks UBS and Credit Suisse on Paradeplatz in Zurich, Switzerland, March 20, 2023. REUTERS/Dennis Balibus/File Photo

β€œIt was meant to be the end of a bailout that was too big to fail and state-led,” said Jean Dermane, INSEAD professor of banking and finance, adding that the episode showed that such central reform after the global financial crisis was not. a job.

Arturo Brice, professor of finance and director of the IMD Center for Global Competitiveness, said the bailout also showed that even major global banks are vulnerable to bank panic attacks.

Moreover, the disappearance of investment bank Credit Suisse, which UBS said it would seek to downsize significantly, marks another pullback for a European lender from securities trading, which is now largely dominated by US companies.

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Since the global financial crisis, many banks have scaled back their global ambitions in response to stricter regulations.

Switzerland’s regulator, FINMA, which has come under fire for its handling of the collapse of the country’s second-biggest bank, said one of the newly merged bank’s most pressing goals was to quickly reduce the risk of former Credit Suisse investment bank.

UBS is set to post a huge profit in its second-quarter results after buying Credit Suisse for a fraction of what’s called fair value.

However, Ermoti warned that the coming months will be “bumpy” as UBS continues to absorb Credit Suisse, a process UBS said would take three to five years.

Offering the first snapshot of the new group’s finances last month, UBS underscored the significant stakes involved, by outlining tens of billions of dollars in potential costs and benefits, but also the uncertainty surrounding those figures.

Next challenge

Ermoty’s first challenge, redirected to the merger, is likely to be a politically charged decision about the future of Credit Suisse’s “crown jewel” – the bank’s domestic business.

Incorporating it into the UBS fold and combining the two banks’ largely overlapping networks could result in significant savings and Ermotti has indicated that as a base scenario.

But he will need to balance that with public pressure to crucially preserve Credit Suisse’s local business with its brand, identity and workforce.

Analysts say public concerns that the new bank will be too big – with a balance sheet nearly twice the size of the Swiss economy – means UBS may need to tread carefully to avoid exposure to the tougher regulations and capital requirements that its new scale may require. .

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They also warned that the uncertainty inevitably created by an acquisition of this size could leave UBS struggling to retain employees and customers and that it remains an open question whether the deal can deliver long-term shareholder value.

($1 = 0.9030 Swiss francs)

($1 = 0.9097 Swiss francs)

(Reporting by Noel Ellen) Additional reporting by John O’Donnell and John Revell Editing by Miranda Murray, Thomas Janowski, Edwina Gibbs and Sharon Singleton

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