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UBS expects to complete its takeover of Credit Suisse “as early as June 12”, which will create a giant Swiss bank with a balance sheet of $1.6 trillion.
Fabrice Coffrini | Afp | Getty Images
Swiss bank UBS on Monday said that it formally completed the takeover of its rival Credit Suisse.
“Instead of competing, we’ll now unite as we embark on the next chapter of our joint journey,” UBS Group’s newly-returned CEO Sergio Ermotti said in a statement.
In an open letter, the bank’s chiefs also said they would not compromise UBS’s “strong culture” or “conservative risk approach.” Risk management failures over a number of years played a key role in Credit Suisse’s eventual downfall.
Ermotti told CNBC’s “Squawk Box” in a Monday interview that he believed the combined bank — which he said was the world’s 21th largest — would “compete better, serve our clients better.”
“We are the only bank with this kind of magnitude and size and scope that is focused on wealth management,” Ermotti said.
“We need to make sure we don’t fall back into any bad habits or do things the wrong way. But in that sense we have a very clear view on how to manage a UBS-led integration,” he continued, as it seeks to “restore confidence.”
UBS Group will manage UBS and Credit Suisse as separate banks at least for the short term. Questions linger over the future of assets including Credit Suisse’s prized retail bank.
Following the acquisition, Credit Suisse and its American Depositary Shares will be delisted from the SIX Swiss Exchange and New York Stock Exchange, with shareholders receiving one UBS share for every 22.48 Credit Suisse shares held.
The enlarged UBS will have a balance sheet of $1.6 trillion and a workforce of 120,000. Ermotti previously warned the new group “won’t be able to create, short term, job opportunities for everybody. Synergies is part of the story.” The combined company will report its first consolidated results on August 31.
UBS said Monday it expected “Credit Suisse operating losses and significant restructuring charges” to be offset as it ditches risk-weighted assets, and forecast a common equity tier 1 capital ratio — a measurement of capital against assets — of around 14% for the rest of the year.
Top team shake-up
In an internal memo seen by CNBC, the bank announced that several senior Credit Suisse figures intend to leave the company, including Chief Financial Officer Dixit Joshi, who only took on the role in October, and Asia Pacific regional CEO Edwin Low.
Simon Grimwood, currently Credit Suisse’s global head of tax and finance change, will take over as Credit Suisse CFO. Grimwood has been managing integration planning since March, the bank said.
Former Credit Suisse Co-head of Markets Michael Ebert will become head of the Credit Suisse investment bank and head of Americas at UBS investment bank, while Jake Scrivens will replace Markus Diethelm as general counsel. Credit Suisse Global Head of Operations Isabelle Hennebelle joins the board in her existing role as head of operations.
Asked whether he was concerned about an exodus of talent, Ermotti told CNBC: “We are always sorry to see talented people leaving, in other cases people were anticipating probably the inevitable restructuring that we will need to go through and decided to go.”
He added that the bank had managed to attract external talent after the acquisition announcement.
Ermotti’s own return to the UBS top job was confirmed in March shortly after the takeover announcement to oversee the transition. He previously led the company from November 2011 to October 2020, managing the fallout from the 2008 financial crisis and a $2.3 billion loss stemming from a rogue trader in London. UBS Chair Colm Kelleher said he “transformed” the bank through cost cutting and implementing cultural changes.
Challenging environment
Sweetening the deal, the Swiss government has agreed to cover losses of up to 9 billion Swiss francs ($10 billion) after UBS incurs the first 5 billion Swiss francs as part of the transaction, as the bank absorbs a portfolio that does not entirely “fit its business and risk profile.”
The takeover, which follows multiple scandals and years of share price decline at Credit Suisse, controversially wiped out the 16 billion Swiss francs ($17 billion) worth of assets of the bank’s AT1 bond holders.
Beat Wittmann, co-founder and partner at Porta Advisors, said the speed with which UBS had managed the takeover was positive for the bank.
Going forward will be “certainly a challenge … but UBS, due to the emergency operation and the collective failure of policymakers and of course of Credit Suisse, got over a weekend an extraordinarily advantageous deal,” Wittmann told CNBC’s “Squawk Box Europe”.
“There’s so much margin of safety in terms of price, in terms of credit lines, in terms of risk sharing with the government, that this is a great deal indeed.”
Wittmann said that UBS faces several key challenges, the first of which is the physical integration of the two banking juggernauts and merging of their operating models.
Citing a Financial Times report published over the weekend — which CNBC has not confirmed — that UBS had set “red lines” for Credit Suisse bankers including bans on new clients from high-risk countries and on launching new products without the approval of UBS managers, Wittmann said “that’s exactly what a bank should do in any case.”
Addressing the report, Ermotti told CNBC: “We have developed that ‘red line’, which I wouldn’t really call a ‘red line’, over the course of years. This is simply what I mentioned before, we are introducing our processes, our operating model, into Credit Suisse. It’s not meant to be discriminatory.”
As for further challenges, Wittman drew attention to an upcoming parliamentary inquiry into the Credit Suisse takeover and wider banking stability. Swiss elections could also lead to “populist demands,” he stressed, as jobs are cut and branches close around Switzerland. A final trial is the broader macro environment, Wittman said, given the current credit crunch and likely financial market volatility resulting from higher interest rates.
