UBS Group AG Chief Executive Officer Sergio Ermotti gave his strongest indication yet that the Swiss government and central bank will avoid taking a financial hit from the emergency rescue of Credit Suisse Group AG.
(Bloomberg) — UBS Group AG Chief Executive Officer Sergio Ermotti gave his strongest indication yet that the Swiss government and central bank will avoid taking a financial hit from the emergency rescue of Credit Suisse Group AG.
Losses are “exceptionally unlikely,” Ermotti said at a media forum in the Swiss city of Lucerne on Friday. The CEO reiterated comments earlier this month that the bank will “do everything” in its power to avoid taxpayer support as part of the government-backed takeover in March.
UBS is embarking on one of the most complex integrations in global banking since the 2008 financial crisis as it seeks to retain the clients and talent of its long-time rival while shedding riskier assets. To ease the takeover, the Swiss government agreed to absorb about 9 billion francs ($10.1 billion) of losses UBS might take. The bank would bear the first 5 billion francs of losses, giving UBS an added incentive to preserve value as it winds down unwanted assets.
The Swiss National Bank also agreed to provide additional liquidity lines of 200 billion francs in total as part of the deal, which will see UBS pare back large parts of Credit Suisse’s investment bank.
The combined support from the two entities gives the transaction a backdrop of political drama after Switzerland and other countries globally sought to put an end to taxpayer-financed bailouts after the 2008 crisis.
Ermotti’s assertion that losses will be contained comes as the bank prepares for in-depth due diligence on Credit Suisse’s business, with closing of the deal seen as soon as the end of May. Unlike in more standard acquisitions, UBS was unable to conduct a months-long review of the bank’s books. UBS has sent in a so-called clean team to assess its former rivals’ client rosters and talent, as well as which business lines should be earmarked for a wind-down unit, people with knowledge of the matter have said. Communication back to UBS is still restricted though, according to the people.
UBS ‘Clean Team’ Descends on Credit Suisse as Deal Nears Closing
The deeper evaluation is important because only those assets tagged for disposal in a so-called bad bank will be eligible for the state loss guarantees. Any hit outside the wind-down unit will be solely UBS’s problem. The bank has said the integration work could take up to 4 years and that it expects $8 billion in cost savings, with about $6 billion coming from job eliminations and the rest from technology systems.
UBS plans to take a broad approach to what it deems as non-core, which is expected to go beyond what Credit Suisse had already place in its own wind-down unit. Bankers are already flagging concerns about some portfolios of loans in high-growth Asian countries, in particular lending relationships in Indonesia, Vietnam, Malaysia and India, people familiar with the matter earlier told Bloomberg.
On Track
Ermotti also again sought to portray the deal as a unique opportunity to improve Switzerland as a financial center. UBS considered growing via deals after the financial crisis and also looked at Credit Suisse several times during his first stint in charge of UBS, he said at the event.
Credit Suisse had to be rescued after a series of scandals and missteps undermined the confidence of clients and investors. When referring to outflows of client money, Ermotti said “the situation has stabilized,” at Credit Suisse without giving further details. The bank had said last month that it had 61.2 billion francs of outflows in the first quarter.
UBS Chairman’s Top-Secret Prep Paid Off in Credit Suisse Moment
UBS is on track with a plan to close the transaction in less than three months from when the takeover was announced, according to the CEO. Its focus is also on integrating the investment banks and the future of Credit Suisse’s domestic unit, the Swiss Universal Bank, he said.
UBS had initially said it wanted to keep that business, but has now said it’s open to all options.
UBS should have a solution for the Swiss business after the Summer break, finews.ch cited Vice Chairman Lukas Gaehwiler as saying on the sidelines of the Lugano Banking Day on Thursday.
The merger doesn’t create a bank that’s too big for Switzerland and there’s sufficient competition in the country, Ermotti said. The CEO declined to speculate on the number of jobs that may be cut.
UBS has indicated that it’s seeking to cut back some of Credit Suisse’s riskier operations at the investment bank and will screen bankers to make sure they fit with the firm’s values and risk approach.
–With assistance from Marion Halftermeyer.
(Updates with comments on Swiss financial center in sixth paragraph)
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