UBS is to impose strict restrictions on Credit Suisse bankers, including a ban on new clients from high-risk countries and on complex financial products as it prepares to take over its ailing rival as early as Monday.
UBS executives have drawn up a list of nearly two dozen “red lines” banning Credit Suisse employees from a range of activities from the first day the two banks merge, according to people with knowledge of the measures.
Prohibited activities include taking on clients from countries such as Libya, Russia, Sudan and Venezuela and launching new products without the approval of UBS executives.
Ukrainian politicians and state-owned businesses will also be blocked to prevent potential money laundering
“We̵[ads1]7;re concerned about ‘cultural contamination,'” UBS chief Colm Kelleher said last month after hiring Credit Suisse staff. “We’re going to have an incredibly high standard for who we bring into UBS.”
The bans, written by UBS’s compliance department, are designed to de-risk the transaction, which was orchestrated by Swiss authorities three months ago to save Credit Suisse from collapse.
UBS executives fear they are taking on a bank that has traditionally been much more willing to accept risky clients and offer them high-stakes products. Credit Suisse’s last year as an independent company was marked by a series of scandals and crises, which an internal report said were the result of its “lack of attitude towards risk”.
UBS on Wednesday finalized a deal with the Swiss government that will give the bank up to SFr9 billion ($10 billion) to protect it from losses on the bailout. The state aid will start after UBS covers the first SFr5 billion losses.
The loss protection agreement was the last hurdle for UBS to cross before completing the takeover.
The list of restrictions – which UBS executives have called “red lines” – covers 11 financial risks and 12 non-financial risks.
While many of the risks are operational – regarding issues such as the distribution of research and the use of offices – other decrees affect areas of Credit Suisse’s business more directly.
Under the rules, Credit Suisse bankers are unable to trade a number of arcane financial products, including Korean derivatives and options on certain quantitative indices.
In 2006, Credit Suisse lost $120 million on Korean derivatives, prompting a shakeup of the unit’s management team. But the bank has continued to operate in the market.
Credit Suisse employees must also ask UBS executives for permission to extend loans backed by assets such as yachts, ships and real estate of more than $60 million.
As banker to some of the world’s richest people, Credit Suisse has long provided loans to finance billionaires’ purchases of private jets, while also dabbling in yacht financing.
Last year, Credit Suisse asked hedge funds and other investors to destroy documents related to its wealthiest clients’ yachts and private jets after revelations in the Financial Times about a securitization deal involving loans it made to oligarchs that were later sanctioned.
Employees of Credit Suisse’s Swiss bank must request permission from UBS to make loans to borrowers outside the country and for foreign property.
To limit the risk of money laundering, bribery and corruption, Credit Suisse bankers are also barred from acquiring new clients from a number of high-risk countries. These include Afghanistan, Albania, Belarus, Burkina Faso, Democratic Republic of the Congo, El Salvador, Eritrea, Ethiopia, Guinea, Haiti, Iraq, Kosovo, Kyrgyzstan, Libya, Moldova, Myanmar, Nicaragua, Palestine, Russia, South Sudan, Sri Lanka, Sudan, Tajikistan, Turkmenistan, Uzbekistan, Venezuela, Yemen and Zimbabwe.
Credit Suisse employees were sent a company-wide memo on Thursday saying to expect new “red lines” on the day the deal closed, although the details of the rules were not included.
UBS and Credit Suisse declined to comment on the rules.
Separately, Swiss parliamentarians voted Thursday to commission a special parliamentary commission of inquiry into the collapse of Credit Suisse.