Will UBS’s takeover of Credit Suisse forge a Swiss titan?
Sealing the merger deal of the two biggest banks in Switzerland over a weekend is an impressive feat. But the hardest part is yet to come, as the pain of integration begins.
All regulatory hands were on deck in Bern, Switzerland over the weekend to pave the way for UBS to acquire its rival Credit Suisse for SFr3bn ($3.2bn), which continued to see deposit outflows in spite of the SFr50bn lifeline from the Swiss National Bank (SNB) on March 16.
The Swiss Federal Department of Finance, SNB and the Swiss Financial Market Supervisory Authority orchestrated the emergency rescue of Credit Suisse, pushing through the sale in an attempt to calm the jittery markets. To get the deal over the line, the central bank also pledged a SFr100bn liquidity line to both banks.
In addition, the federal government granted UBS a guarantee in the amount of SFr9bn to assume potential losses arising from certain assets that UBS takes over as part of the transaction.
While many are likening the deal to a ‘shotgun wedding’, there is definitely some upside for UBS. As it points out in a statement, the takeover creates a global wealth manager with $5tn-worth of invested assets, extends the bank’s lead in its home market and further strengthen its position as the leading Swiss-based global wealth manager.
However, there are significant integration challenges that can plague an acquisition of this size and complexity. One just has to think back to 2019 and the collapse of talks around the merger of the then troubled Deutsche Bank and rival Commerzbank, despite pressure from then German finance minister, Olaf Scholz, to create a German banking giant.
As Deutsche Bank said at the time: “A combination with Commerzbank would not have created sufficient benefits to offset the additional execution risks, restructuring costs and capital requirements associated with such a large-scale integration.”
These are the issues that UBS will have to contend with. Credit Suisse is a 167-year-old institution with worldwide operations. Its investment banking division has been mired in crisis after crisis. And its cost-to-income ratio at the end of 2022 stood at 121.55% – almost twice that of UBS.
While Credit Suisse had already begun to address the cost issue, it had not got very far. In October 2022, it announced transformation plans, including cutting its cost base by 15%, or SFr2.5bn. According to a statement, it planned “a radical restructuring of the investment bank, an accelerated cost transformation, and strengthened and reallocated capital, all of which are designed to create a new Credit Suisse”.
Its plan included carving out Credit Suisse First Boston as an independent capital markets and advisory bank, and it recently acquired the Klein Group, an investment banking business, to further those aims.
Getting on top of this complexity will be top of mind for CEO Ralph Hamers, who took the helm at UBS in November 2020. As a first step, he will probably look to sell off large chunks of its acquisition’s operations. UBS is already planning to dramatically shrink Credit Suisse’s investment bank, so that the combined entity will make up no more than a third of the merged group, according to a Financial Times report.
And then the hard work of integration begins in earnest, not just in terms of IT systems and operations, but also culture.
Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight
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