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UBS tells investors 'Herculean' Credit Suisse takeover will pay off

Last month, Swiss authorities announced that UBS would buy Credit Suisse in a shotgun merger to stem further banking turmoil after the smaller lender had come to the brink of collapse.

Reuters
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Buildings of Swiss banks UBS and Credit Suisse are seen at Paradeplatz in Zurich, Switzerland March 21. Photo: Reuters
Buildings of Swiss banks UBS and Credit Suisse are seen at Paradeplatz in Zurich, Switzerland March 21. Photo: Reuters

UBS executives sought to assure investors on Wednesday that Switzerland's largest bank can make its unexpected takeover of Swiss rival Credit Suisse work and pay off for its shareholders.

While describing the biggest bank rescue since the global financial crisis as a milestone for the industry and a major challenge for the bank, Chairman Colm Kelleher told UBS shareholders it also meant "a new beginning and huge opportunities ahead for the combined bank and for the Swiss financial center as a whole."

Last month, Swiss authorities announced that UBS would buy Credit Suisse in a shotgun merger to stem further banking turmoil after the smaller lender had come to the brink of collapse.

After a run on deposits, the Swiss government had turned to UBS, which agreed to buy Credit Suisse for US$3.3 billion (about RM14.5 billion), while the Alpine state put up more than 200 billion francs of support and guarantees.

Kelleher told the bank's shareholder meeting in Basel UBS was confident in its ability to successfully manage Credit Suisse's integration and that the combined bank would remain well capitalised.

"We believe the transaction is financially attractive for UBS shareholders," he said.

The hastily arranged rescue, not only angered and unsettled both banks' shareholders, but also many in Switzerland.

A survey by political research firm found a majority of Swiss did not support the deal that would create a financial institution with assets double the size of the country's annual economic output.

As shareholders expressed their frustration about being kept in the dark, with one calling it "an insult," some also voiced concerns about potential job losses and the new giant bank's adverse impact on competition.

Vice Chairman Lukas Gaehwiler sought to quell such fears saying there were around 250 banks in the country and therefore enough competition.

He also said it was too early to speculate about jobs before the "Herculean task" of the merger had completed, which he expected to happen within a few months.

On Sunday, Swiss daily Tages-Anzeiger cited an unnamed senior UBS manager as saying that the workforce of the combined group could shrink by 20-30%.

All options on table

Gaehwiler also said that "all options are on the table" concerning Credit Suisse's domestic business, which would continue to operate under its old brand in Switzerland for the foreseeable future.

Shareholders also took aim at the executives' pay and bonus packages, which made Ralph Hamers the best paid chief executive in Switzerland in 2022.

In contrast to its smaller rival, UBS had been on a steady course. It reported a net profit of US$7.6 billion for 2022 and strong inflows in wealth management, the company's flagship division.

Looking at how to navigate the mammoth task of integrating Credit Suisse, the success of which Switzerland depends on, UBS has already taken the first steps. Last week, the bank announced it had rehired Sergio Ermotti as chief executive to steer the massive takeover - a surprise move to take advantage of the Swiss banker's experience rebuilding the bank after the global financial crisis.

Addressing shareholders for the final time as chief executive, Hamers acknowledged the merger has led to new priorities for the bank, bringing a change at its helm.

"The acquisition of Credit Suisse will be a major challenge," Hamers said, while echoing the bank's chairman in highlighting new opportunities.

"It is expected to create a business with more than US$5 trillion in total invested assets," he said.

On Wednesday UBS shareholders re-elected Kelleher as chairman, as well as all existing members of the board of directors, and approved their and bank executives' compensation.

Wednesday also marked Ermotti's first official day back in the job, although he did not attend the meeting.

It came a day after executives at Credit Suisse faced their own shareholders and Chairman Axel Lehmann apologised for leading the bank to the verge of bankruptcy.

In the face of growing criticism, Switzerland's financial regulator deflected blame for the collapse of Credit Suisse, saying it had been quick to respond, calling instead for more powers to take lenders to task.

On Tuesday, Reuters also reported that the Bank of England had approved UBS' takeover of Credit Suisse in Britain, a key market for the Swiss lenders racing to close the rescue deal.

UBS also secured a temporary green light from European Union antitrust regulators to complete its acquisition of Credit Suisse, but will still have to request clearance under EU merger rules, the European Commission said.

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