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

ZURICH (Reuters) – UBS (UBSG.S) finalized its emergency takeover of local rival Credit Suisse (CSGN.S) on Monday, creating a Swiss banking and wealth management giant with a $1.6tn balance sheet.

Marking the closing of the largest bank transaction since the 2008 financial crisis, UBS CEO Sergio Ermotti and Chairman Colm Kelleher said that despite the challenges, there are “many opportunities” for customers, employees, shareholders and Switzerland.

The combined group will oversee $5 trillion in assets, giving UBS a leading position in key markets that would have taken years to grow in size and reach. The merger also ended 167 years of independence for Credit Suisse.

After peaking at more than CHF82 in 2007, Credit Suisse’s share price has been corroded by scandals and losses in recent years and closed at CHF0.82 on Monday.

Shares of UBS rose 0.8%, valuing the bank at around CHF64 billion ($70 billion).

The two banks now jointly employ about 120,000 people worldwide, although UBS has already said it will cut jobs to reduce costs and capitalize on synergies.

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

A UBS spokesperson said that of the more than 160 leaders confirmed or appointed, just over a fifth are from Credit Suisse.

Andre Helfenstein will remain head of Credit Suisse’s domestic business, for which UBS said it was examining all strategic options.

closing rush

UBS agreed on March 19 to buy Credit Suisse for an approximate price of CHF3 billion and up to CHF5 billion in assumed losses in a bailout orchestrated by Swiss authorities with Switzerland’s second largest bank on the verge of collapse.

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

UBS sealed the acquisition in less than three months, a tight timeline given its size and complexity, in a race to provide greater certainty to both customers and employees.

However, the deal debunked two myths – namely, that Switzerland is a stable and predictable investment destination and that problems with banks would no longer affect taxpayers.

“It 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 large global banks are vulnerable to panic attacks. An outflow of deposits prompted Credit Suisse to seek help.

Press added that Switzerland’s reputation as a “safe and predictable political environment where the private sector operates freely and without government interference” has been damaged.

The disappearance of Credit Suisse’s investment bank, which UBS said it would seek to downsize significantly, marks another decline for a European lender from securities trading, a business now largely dominated by US companies.

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

Swiss regulator FINMA, which has come under fire for its handling of the situation, said one of the newly merged bank’s most pressing goals was to quickly reduce the risks of former Credit Suisse investment bank.

UBS is set to book a huge profit in the second quarter after buying Credit Suisse for a fraction of what is called fair value.

However, Ermoti warned that the coming months will be “bumpy” as UBS continues to absorb Credit Suisse, a process it said will 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

Ermotti’s first challenge, which has been brought back to UBS to steer the merger, will likely be a politically charged decision about the future of Credit Suisse’s “crown jewel”.

Bringing its domestic business into the fold of UBS and combining the two banks’ largely overlapping branch networks could result in significant savings, which Ermotti has cited as a base scenario.

But he will need to balance that against public pressure to crucially preserve Credit Suisse’s 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 stricter rules and capital requirements.

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 = 0.9101 Swiss francs)

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

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