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UBS set to carve up Credit Suisse after takeover day

A merger this complex could turn out to be a nightmare, particularly given how little time UBS has had.

3 minute read
A pedestrian walks past a logo of Credit Suisse outside its office building in Hong Kong. Photo: Reuters
A pedestrian walks past a logo of Credit Suisse outside its office building in Hong Kong. Photo: Reuters

UBS is set to finalise the takeover of Credit Suisse on Monday, but the hardest part is yet to come: turning the arranged marriage of Switzerland's biggest banks into a success.

Reassuring the financial markets, customers, employees, the government and the public remains a challenge once the mega-merger is completed.

"From Monday onwards, UBS can start being proactive," Andreas Venditti, an analyst at Swiss investment manager Vontobel, told AFP.

Switzerland's largest bank must already have an idea of what bits of Credit Suisse it wants to keep, close or sell, but "so far they were limited in what they could do," he said.

On June 5, the two Zurich-based banks announced that the merger should be completed on June 12.

A merger this complex could turn out to be a nightmare, particularly given how little time UBS has had.

UBS expects an exceptional accounting gain of nearly US$35 billion (RM161.49 billion) due to the difference between the purchase price and the recognised net assets of Credit Suisse.

UBS chief executive Sergio Ermotti has warned the coming months will be "bumpy" for the bank.

Takeover preparations have already brought "a first wave" of emotions and difficult decisions, but "other waves" are still to come, he told the Swiss Economic Forum conference in Interlaken on Friday.

He said jobs would be the trickiest part of the merger, adding that cuts were inevitable given the overlap in some activities.

Shotgun wedding 

Like UBS, Credit Suisse was among 30 international banks deemed too big to fail due to their importance in the global banking architecture.

But the collapse of three US regional lenders in March left Credit Suisse looking vulnerable, and its share price plunged more than 30% during trading on March 15.

The Swiss government, the central bank and financial regulators then stepped in and strongarmed UBS into a US$3.25 billion takeover announced on Sunday, March 19, before the markets reopened the following day.

The government feared Credit Suisse would have quickly defaulted and triggered a global banking crisis.

The deal includes guarantees for UBS in case there are any nasty surprises in the Credit Suisse cupboards.

UBS and the Swiss government signed the guarantee contract on Friday, which can reach up to nine billion Swiss francs (US$9.85 billion), if the losses exceed five billion francs.

The takeover terms and the size of the resulting megabank are causing serious concern in Switzerland.

The parliament in Bern has set up an extremely rare commission of inquiry, with lawmakers set to investigate how the emergency rescue was stitched together in double-quick time.

Questions remain 

Many questions surrounding the merger remain unanswered. Investors want to know more about the integration process and the bits of Credit Suisse that will be kept and absorbed.

Venditti said the picture should be clearer once second-quarter financial results come out. UBS has pushed back the publication date by more than a month to August 31.

He said he hopes UBS will say more about the fate of the profitable domestic retail branch of Credit Suisse, the arm that was untouched by the scandals that dogged the bank.

Ipek Ozkardeskaya, an analyst at Swissquote Bank, said "talent retention" would be one of the biggest challenges, as staff departures multiply in the face of downsizing fears.

She also highlighted the need for "creating a new bank culture" in the merged institution, referring to the string of scandals that tarnished the Credit Suisse brand.

From the political standpoint, the financial regulators Finma "should make sure to protect competition, which could necessitate an eventual spin-off of certain business units", Ozkardeskaya told AFP.

The Socialist Party fears the merger will create a "monster" that would be too big to rescue in a crisis – in which case the whole country would be held "hostage".

The government and the central bank released some 259 billion Swiss francs of liquidity to facilitate the takeover.

"We owe it to the youth of this country to ensure that such a crisis cannot happen again," Damien Cottier, the parliamentary leader of the centre-right Liberals party, said in the National Council lower chamber on Wednesday.