UBS said Monday it had completed the emergency takeover of contentious local rival Credit Suisse, creating a giant Swiss bank with a $1.6 trillion balance sheet and more muscle in asset management.
UBS CEO Sergio Ermotti and Chairman Colm Kelleher, announcing the biggest banking deal since the 2008 global financial crisis, said it would create challenges but also “many opportunities” for customers, employees, shareholders and Switzerland.
The group will oversee $5 trillion in assets, giving UBS a leadership 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, which has been marred by scandals and losses in recent years.
After peaking at more than 82 Swiss francs ($90.11) in 2007, Credit Suisse, plagued by scandals and heavy losses, plummeted to deeper lows, closing at less than one franc ($1.10) on Monday.
Credit Suisse shares closed about one percent higher on their last day of trading, while UBS shares also rose about 0.8 percent.
The two banks collectively employ 120,000 people worldwide, though UBS has already announced it is cutting jobs to cut costs and take advantage of synergies.
UBS announced a series of management changes, including at Credit Suisse AG, which is now a subsidiary that will be managed separately.
Of the more than 160 leaders confirmed or appointed at UBS today, more than a fifth come from Credit Suisse, a UBS spokesperson said.
Andre Helfenstein, head of Credit Suisse’s domestic operations, will remain in his position. UBS has said it is considering all strategic options for the unit.
Closing striker
UBS on March 19 agreed to buy the lender for a price of 3 billion Swiss francs ($3.3 billion) and up to 5 billion francs ($5.5 billion) in assumed losses in a bailout orchestrated by Swiss authorities to prevent customer confidence from collapsing. pushing Switzerland’s number two bank 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 from winding down parts of Credit Suisse’s business.
UBS sealed the acquisition in less than three months – a tight timeframe given its size and complexity – in a race to provide greater certainty to Credit Suisse customers and employees and avoid departures.
Myths debunked
However, the deal, in which the state financed the bailout, exposed two myths: that Switzerland was completely predictable and that the banks’ problems would not be passed on to taxpayers.
“It should have been the end of too-big-to-fail and state-led bailouts,” said Jean Dermine, professor of banking and finance at the Institut Européen d’Administration des Affaires (INSEAD), adding that the episode showed see this central reform after the global financial crisis had not worked.
The rescue also showed that even large international banks are vulnerable to bank panic attacks, said Arturo Bris, professor of finance and director of the IMD World Competitiveness Center.
In addition, the disappearance of the Credit Suisse investment bank, which UBS has said it will try to cut significantly, marks another withdrawal of a European lender from securities trading, now largely dominated by US companies.
Since the global financial crisis, many banks have scaled back their global ambitions in response to tighter regulation.
Swiss regulator FINMA, which has come under fire for its handling of the demise of the country’s second-largest bank, said one of the newly merged bank’s most pressing goals was to quickly reduce the former investment bank’s risk. Credit Suisse to shrink.
UBS is poised to make a huge profit in its second-quarter results after buying Credit Suisse at a fraction of its so-called fair value.
However, Ermotti has warned that the coming months will be “bumpy” as UBS continues to absorb Credit Suisse, a process that UBS says will take three to five years.
UBS presented the first snapshot of the new group’s finances last month, underlining its high stakes by pointing to tens of billions of dollars in potential costs and benefits, but also uncertainty about those numbers.
New challenges
Possibly the first challenge for Ermotti, brought back to steer 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 the fold of UBS and combining the two banks’ largely overlapping networks could yield significant savings, and Ermotti has indicated that this is a baseline scenario.
But he will have to weigh that against public pressure to keep Credit Suisse’s domestic business with its own brand, identity and, crucially, workforce.
Analysts say the public’s concern that the new bank will become too big – with a balance sheet roughly twice that of the Swiss economy – means UBS needs to be careful to avoid being exposed to even harsher regulatory and capital requirements that the new scale would require. .
They also warn that uncertainty unavoidably created by an acquisition of this magnitude could leave UBS struggling to retain staff and customers and whether the deal can deliver long-term value to shareholders remains an open question.