UBS announced on Monday that it had completed its buyout of competitor Credit Suisse.
“Instead of competing, we’ll now unite as we embark on the next chapter of our joint journey,” said UBS Group’s newly-returned CEO Sergio Ermotti in a statement.
The bank’s executives also stated in an open letter that they would not compromise UBS’s “strong culture” or “conservative risk approach.” Failures in risk management over a period of years had a significant influence on Credit Suisse’s eventual demise.
For the time being, UBS Group will run UBS and Credit Suisse as independent institutions, although doubts about the future of assets such as Credit Suisse’s valued retail bank remain.
Credit Suisse and its American Depositary Shares will be delisted from the SIX Swiss Exchange and the New York Stock Exchange following the purchase, with shareholders receiving one UBS share for every 22.48 Credit Suisse shares owned.
The expanded UBS will have a $1.6 trillion balance sheet and a workforce of 120,000 people. Ermotti earlier cautioned that the new firm “will not be able to create job opportunities for everyone in the short term.” Synergies are an important component of the tale.” On August 31, the United business will release its first consolidated results.
UBS said on Monday that “Credit Suisse operating losses and significant restructuring charges” will be offset as it abandons risk-weighted assets, and that it expects a common equity tier 1 capital ratio — a measure of capital versus assets — of approximately 14% for the rest of the year.
Reorganization of the top team
According to an internal document obtained by CNBC, numerous senior Credit Suisse executives want to quit the business, including Chief Financial Officer Dixit Joshi, who was recently appointed in October, and Asia Pacific regional CEO Edwin Low.
Simon Grimwood, presently Credit Suisse’s global head of tax and finance transformation, will take over as CFO. Grimwood has been in charge of integration planning since March, according to the bank.
Former Credit Suisse Co-president of Markets Michael Ebert will become president of Credit Suisse investment bank and head of Americas at UBS investment bank, while Jake Scrivens will take over as general counsel in lieu of Markus Diethelm. Isabelle Hennebelle, Credit Suisse Global Head of Operations, joins the board in her current capacity as head of operations.
“While the transaction is now complete, the most critical phase has only just begun,” Ermotti and UBS Chair Colm Kelleher said in a separate memo. “We need to define the details and apply everything we’ve learned and discussed in the last few weeks.” And we are preparing effectively and wisely across all of our businesses, and we will share information with you as soon as we can.”
A difficult environment
The $3.2 billion acquisition marked the dramatic finale of a frenetic weekend in March when fears that Credit Suisse’s massive losses may collapse the financial sector drew the attention of important Swiss authorities.
To sweeten the deal, the Swiss government has promised to cover losses of up to 9 billion Swiss francs ($10 billion) incurred by UBS as part of the acquisition, as the bank absorbs a portfolio that does not totally “fit its business and risk profile.”
The buyout, which came after repeated scandals and years of share price declines at Credit Suisse, controversially wiped out the bank’s AT1 bond holders’ holdings worth 16 billion Swiss francs ($17 billion).
According to Beat Wittmann, co-founder and partner of Porta Advisors, the speed with which UBS completed the transaction was beneficial to the bank.
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The future will be “certainly a challenge… but UBS, due to the emergency operation and the collective failure of policymakers and, of course, Credit Suisse, got an extraordinarily advantageous deal over the weekend,” Wittmann said on CNBC’s “Squawk Box Europe.”
“There’s so much margin of safety in terms of price, credit lines, and risk sharing with the government that this is a fantastic deal.”
According to Wittmann, UBS confronts four major problems, the first of which is the physical integration of the two banking behemoths and the merger of their operational structures.
Wittmann said, citing a Financial Times report published over the weekend — which CNBC has not confirmed — that UBS will impose restrictions on Credit Suisse bankers, including a ban on new clients from high-risk countries and a ban on launching new products without the approval of UBS managers, that “that’s exactly what a bank should do in any case.”
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In terms of future problems, Wittman highlighted an expected parliamentary examination into the Credit Suisse merger and overall financial stability. Swiss elections might potentially result in “populist demands,” he said if employment is eliminated and branches close across the country. Wittman sees the larger macro climate as a last test, given the present credit crisis and the probable financial market volatility caused by increasing interest rates.
