With the successful completion of its acquisition of Credit Suisse, UBS now confronts the critical task of fulfilling its commitment to benefiting both shareholders and Swiss taxpayers in this government-led rescue operation.
Marking the largest banking deal since the 2008 financial crisis, this merger has catapulted UBS into the position of an unparalleled global wealth manager, boasting an impressive $5 trillion in assets under management.
This achievement grants UBS an immediate advantage in key markets, a feat that would have otherwise taken them years to accomplish organically.
Engineered over a weekend in March as a safeguard against a broader banking crisis, the tie-up, supported by up to 250 billion Swiss francs ($281 billion) in public funds, now presents substantial challenges and potential rewards for Switzerland and its largest financial institution.
Switzerland is currently confronted with the challenge of managing a bank that possesses a balance sheet twice the size of its own economy.
In the midst of this, Sergio Ermotti, who has been appointed as the CEO to oversee the monumental merger, must navigate through complex strategic choices as UBS integrates its smaller rival amidst an unpredictable economic environment.
One of the initial obstacles involves a politically sensitive choice concerning Credit Suisse’s prized domestic business, often considered its “crown jewel.”
Merging this segment into UBS and consolidating their overlapping networks could yield significant cost savings, an option Ermotti has indicated as the integration’s baseline scenario.
However, UBS must carefully consider the public’s demand to maintain Credit Suisse’s business as a separate entity, preserving its brand, identity, and, crucially, its workforce.
At the end of 2022, the unit employed nearly 7,300 individuals and generated a 1.43 billion Swiss franc operating profit, while the entire group suffered substantial losses.
A combined business would command a dominant position in the Swiss loan market. Nonetheless, concerns among the public regarding the emergence of a Swiss mega-bank may trigger heightened regulatory scrutiny and stricter capital requirements.
UBS has expressed its willingness to explore all options, including the possibility of an initial public offering, with a decision expected within months.
To prevent the departure of staff and customers, UBS has emphasized its intention to act swiftly. Chairman Colm Kelleher has recently indicated that the bank has experienced net gains in certain areas of its business.
However, insiders report intense competition as rival institutions actively seek to lure both Credit Suisse clients and employees away. Approximately 200 individuals are said to be leaving the bank each week.
Investors, financial experts, and analysts point out that retaining and expanding business while bolstering staff morale may present the most significant challenge of all.
Clients who previously diversified their risks by banking with both UBS and Credit Suisse might now choose to redirect some of their business elsewhere.
According to Alan Mudie, Chief Investment Officer at Woodman Asset Management, “One plus one will not equal two.
A substantial portion of the assets will be lost, impacting the profitability of the deal for UBS.”
Moreover, the intricacies of such a complex operation risk diverting the bank’s focus inward, potentially hampering innovation and customer service. Arturo Bris, Professor of Finance at the International Institute for Management Development (IMD) in Lausanne, expresses concern, stating, “My client relationship manager is going to be more worried about keeping their job than servicing my needs.”
UBS aims to complete the integration of the two banks within three to four years, during which time it anticipates a reduction in its combined workforce, currently standing at approximately 120,000 employees.
Chairman Kelleher openly acknowledges concerns about “cultural contamination” and emphasizes the application of a “cultural filter” to personnel from Credit Suisse’s investment bank. He cites inadequate risk controls, unchecked.