UBS, the world’s largest wealth manager, announced on Monday that it has successfully completed its emergency takeover of Credit Suisse, a move that creates a giant Swiss bank with a balance sheet of $1.6 trillion. The deal marks the biggest banking merger since the 2008 global financial crisis and is expected to provide UBS with greater muscle in wealth management.
In an open letter published in Swiss newspapers, UBS CEO Sergio Ermotti and Chairman Colm Kelleher expressed their confidence in handling the takeover. They stated that this merger signifies the beginning of a new chapter for UBS, Switzerland as a financial center and the global financial industry. While acknowledging the challenges ahead, they emphasized the many opportunities the deal brings for clients, employees, shareholders, and Switzerland as a whole.
With the combined group overseeing $5 trillion in assets, UBS now holds a leading position in key markets that would have taken years to achieve organically. Additionally, this merger brings an end to Credit Suisse’s 167-year history, which has been marred by scandals and losses in recent years. On the last day of trading, Credit Suisse shares were up 0.9%, while UBS shares saw an increase of approximately 0.8% in early trading.
The two banks currently employ a total of 120,000 individuals worldwide. However, UBS has already announced plans to reduce costs through job cuts and take advantage of synergies resulting from the merger. This move aims to streamline operations and improve efficiency in the newly formed entity.
UBS agreed to acquire Credit Suisse for a discounted price of 3 billion Swiss francs ($3.32 billion) and assumed losses of up to five billion francs in a rescue operation orchestrated by Swiss authorities. This intervention was intended to prevent a collapse in customer confidence from pushing Credit Suisse, the country’s second-largest bank, over the edge. Furthermore, UBS reached an agreement with the Swiss government on the conditions of a 9 billion Swiss franc ($10 billion) public backstop to cover losses from winding down parts of Credit Suisse’s business.
Both UBS and the Swiss government have assured stakeholders that the takeover will benefit shareholders and not become a burden for taxpayers. They argue that the rescue was necessary to safeguard Switzerland’s standing as a financial center, as a collapse of Credit Suisse could have triggered a broader banking crisis.
The deal challenges two myths about Switzerland’s predictability and the assumption that banks’ problems would not rebound on taxpayers. The rescue operation reveals that even large global banks are susceptible to bouts of panic that cannot be resolved within a few days. It also indicates that the central reform of preventing “too-big-to-fail” and state-led bailouts, implemented after the global financial crisis, has not entirely succeeded.
UBS expects to report a significant profit in the second-quarter results after acquiring Credit Suisse at a fraction of its fair value. However, CEO Sergio Ermotti cautioned that the coming months will be “bumpy” as UBS begins the process of integrating Credit Suisse, which is estimated to take three to five years. Presenting the financial overview of the new entity, UBS highlighted the high stakes involved, including potential costs, benefits, and uncertainty surrounding the numbers.
Credit Suisse’s investment bank signifies another retreat of a European lender from securities trading, which is now largely dominated by U.S. firms. The next challenge for CEO Sergio Ermotti will be making a politically sensitive decision regarding the future of Credit Suisse’s domestic business, often referred to as its “crown jewel.” While merging it into UBS could yield significant savings through network consolidation, public pressure to preserve Credit Suisse’s brand, identity, and workforce poses a crucial factor to consider.
Analysts express concerns that the new bank’s size, with a balance sheet approximately double the size of the Swiss economy, may raise public concerns about being too big. UBS will need to navigate carefully to avoid potentially tougher regulations and capital requirements that its increased scale might attract. Moreover, uncertainty resulting from a merger of this magnitude can challenge UBS’s ability to retain both staff and customers. The long-term value for shareholders remains an open question, and it is yet to be seen if the deal can deliver the anticipated benefits over time.
