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UBS completes Credit Suisse takeover to become wealth management giant




  • UBS has completed its takeover of Credit Suisse
  • New changes in management announced
  • Credit Suisse’s CFO and General Council are leaving

ZURICH, June 12 (Reuters) – UBS ( UBSG.S ) said on Monday it had completed its emergency takeover of embattled local rival Credit Suisse ( CSGN.S ), creating a giant Swiss bank with a balance sheet of 1.6 trillion dollars and greater muscle in asset management.

UBS chief Sergio Ermotti and chairman Colm Kelleher announced the biggest banking deal since the 2008 global financial crisis, saying it would create challenges but also “many opportunities” for clients, employees, shareholders and Switzerland.

The group will oversee $5 trillion of assets, giving UBS a leading position in key markets that would otherwise have taken years to grow in size and reach. The merger also ends Credit Suisse’s 167-year history, the last few years marked by scandals and losses.

After hitting a peak of more than 82 Swiss francs ($90.14) in 2007, Credit Suisse, plagued by scandals and heavy losses, fell to ever-deeper lows, closing at less than one franc on Monday.

Credit Suisse shares closed up about 1% in the last trading day, while UBS was also up about 0.8%.

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

UBS announced a number of management changes, including at Credit Suisse AG, which is now a separately run subsidiary.

Of the more than 160 executives being confirmed or appointed today at UBS, over a fifth come from Credit Suisse, a UBS spokesperson said.

Andre Helfenstein, head of Credit Suisse’s domestic operations, will remain in his role. UBS, has said it is considering all strategic options for the unit.

CLOSING DRINK

UBS agreed on March 19 to buy the lender for a knockdown price of 3 billion Swiss francs ($3.32 billion) and up to 5 billion francs in assumed losses in a rescue Swiss authorities orchestrated to prevent a collapse in the clients’ confidence pushed Switzerland no. 2 knocks over the edge.

On Friday, UBS finalized an agreement on the terms of a public backstop of 9 billion Swiss francs ($10 billion) for losses by winding down parts of Credit Suisse’s business.

UBS sealed the takeover in less than three months – a tight timetable given its scale and complexity – in a race to provide greater security for Credit Suisse clients and staff, and stave off departures.

Myths debunked

However, the deal, which saw the state’s bankroll bail out, exposed two myths – namely that Switzerland was entirely predictable and that the banks’ problems would not fall back on taxpayers.

Buildings of Swiss banks UBS and Credit Suisse are seen on Paradeplatz in Zurich, Switzerland, March 20, 2023. REUTERS/Denis Balibouse/File Photo

“It was supposed to be the end of too-big-to-fail and state-led bailout,” said Jean Dermine, professor of banking and finance at INSEAD, adding that the episode showed this key reform after the global financial crisis had not worked .

The bailout also showed that even large global banks are vulnerable to bank panic attacks, said Arturo Bris, professor of finance and director of the IMD World Competitiveness Center.

Also, the disappearance of Credit Suisse’s investment bank, which UBS has said it will seek to cut significantly, marks another retreat for a European lender from securities trading, which is now largely dominated by American firms.

Since the global financial crisis, many banks have reduced their global ambitions in response to tougher regulations.

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

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

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

In presenting the first snapshot of the new group’s finances last month, UBS underlined the high stakes involved, flagging tens of billions of dollars of potential costs – and benefits, but also uncertainty surrounding those figures.

NEXT CHALLENGE

Possibly the first challenge for Ermotti, brought back to manage the merger, will be a politically charged decision about the future of Credit Suisse’s “crown jewel” – the bank’s domestic operations.

Bringing it into UBS’s fold and combining the two banks’ largely overlapping networks could yield significant savings, and Ermotti has indicated that as a base case scenario.

But he must weigh that against public pressure to preserve Credit Suisse’s domestic operations with its own brand, identity and, critically, workforce.

Analysts say public concern that the new bank will be too big – with a balance sheet roughly twice the size of the Swiss economy – means UBS may have to tread carefully to avoid being exposed to even tougher regulation and capital requirements as the new the scale will require. .

They also warned that uncertainty inevitably caused by a takeover of such scale could leave UBS struggling to retain staff and clients, and that it remained an open question whether the deal could deliver shareholder value in the long term.

($1 = 0.9030 Swiss francs)

($1 = 0.9097 Swiss francs)

Reporting by Noele Illien; Additional reporting by John O’Donnell and John Revill Editing by Miranda Murray, Tomasz Janowski, Edwina Gibbs and Sharon Singleton

Our standards: Thomson Reuters Trust Principles.



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