Now that the acquisition of Credit Suisse has been completed, UBS must deliver on its pledge that the government-organized bailout will benefit both shareholders and Swiss taxpayers.
Since the financial crisis of 2008, the largest banking transaction in history has created a wealth manager with an unmatched worldwide footprint and $5 trillion in assets under management, giving UBS an advantage in important markets that would have taken years to build up otherwise.
The tie-up, which was arranged over a weekend in March to prevent a wider banking crisis and was backed by up to 250 billion Swiss francs ($281 billion) in public funds, now presents Switzerland and its biggest bank with enormous problems and opportunities.
As UBS integrates its smaller rival against an uncertain economic backdrop, Sergio Ermotti, who was brought back as CEO to oversee the mammoth merger, must make difficult strategic decisions. Switzerland now has to deal with a bank whose balance sheet is twice as huge as its economy.
A contentious political choice about Credit Suisse’s “crown jewel,” its domestic operations, may be the first obstacle. This might result in huge savings if brought inside UBS and combined with mostly overlapping networks, as recommended by Ermotti as the foundation scenario for the merger.
However, UBS will need to balance that with the pressure from the general public to retain the Credit Suisse firm distinct with its own name, image, and, most importantly, employees. By the end of 2022, the unit employed about 7,300 people and had an operational profit of 1.43 billion Swiss francs, despite the fact that the entire business had incurred significant losses.
As the public would likely be uncomfortable with a Swiss megabank, the combined company would hold a strong position in the country’s credit market.
With Chairman Colm Kelleher lately indicating net gains in business in several sectors, UBS has emphasised its desire to act swiftly to stop personnel and customer departures.
Insiders, however, report that competitors are aggressively courting Credit Suisse clients and staff. One claimed that each week, 200 people left the bank.
Keeping and expanding a firm while boosting employee morale, according to analysts, financial gurus, and investors, may be the greatest challenge of all.
Customers who previously banked with UBS and Credit Suisse to diversify their risk may now do so with other institutions.
“One cannot be added to one to make two. According to Alan Mudie, chief investment officer at Woodman Asset Management, a sizable amount of the assets would be lost, which will affect how profitable the deal is for UBS.
Additionally, a complicated operation runs the danger of the bank being more internally focused at the price of innovation and customer support.
According to Arturo Bris, professor of finance at the International Institute for Management Development (IMD) in Lausanne, “My client relationship manager is going to be more concerned about keeping their job than taking care of my needs.”
The combined workforce of the two banks, which is currently around 120,000, would need to decrease, according to UBS, which has stated it hopes to complete the integration of the two banks in three to four years.
UBS Chairman Kelleher has publicly expressed concerns about “cultural contamination” and the application of a “cultural filter” to employees from Credit Suisse’s investment bank, citing insufficient risk controls and unrestrained expansion and capital expenditure.
All of this creates uncertainty, which some analysts fear may make it more difficult for the combined business to retain top performers and hire new employees.
Although UBS has already given a financial overview of the combined business and set aside tens of billions of dollars for costs and potential losses associated with the merger, it has also cautioned that the figures could change significantly over time.
However, it will only now that UBS will fully understand a bank that has endured years of scandals, lax oversight, and in March, an acknowledgment of serious deficiencies in its controls. UBS said that it had not discovered any skeletons in Credit Suisse’s books.
Legal challenges to the Swiss government’s decision to write off special AT1 bonds issued by Credit Suisse are one potential concern. Even though UBS is not a party to these legal proceedings, they might increase its funding costs.