UBS swallows doomed Credit Suisse, casting shadow over Switzerland
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[March 20, 2023] By
John O'Donnell and Stefania Spezzati
LONDON (Reuters) -UBS Group emerged as Switzerland’s one and only global
bank with a state-backed rescue of its smaller peer Credit Suisse, a
risky bet that makes the Swiss economy more dependent on a single
The unprecedented move announced late on Sunday in Zurich capped a race
against time by regulators to avert a meltdown in global markets.
Switzerland is pledging more than 160 billion francs ($173 billion) in
loans and guarantees to underpin the new group, guarding against further
risks undermining the lender.
The transaction – the first rescue of a global bank since the financial
crisis of 2008 – grants enormous clout to UBS, ridding it of its main
rival. It will change the landscape of banking in Switzerland, where
branches of Credit Suisse and UBS are dotted everywhere, sometimes just
The two lenders have been pillars of global finance for decades. The
banks, two of the most systemically relevant in global finance, hold
combined assets of up to 140% of Swiss gross domestic product in a
country heavily dependent on finance for its economy.
Following the 2008 financial crash, politicians pledged to never bail
out banks again. The Credit Suisse rescue, orchestrated with public
money, shows banks' continued vulnerability and how their problems can
quickly rebound on their home country.
But it also removes a competitor to Wall Street, with UBS planning to
pare back much of Credit Suisse’s investment bank.
"Under normal circumstances, I would say it is an absolutely fantastic
deal for UBS," said Johann Scholtz, equity analyst at Morningstar,
covering European Banks, Amsterdam. "In the current environment, it is a
bit more complicated as there is a lot of uncertainty generally in the
REVERSAL OF FORTUNES
Soon after the announcement, central banks including the Federal
Reserve, the European Central Bank and the Bank of Japan said they would
enhance dollar swap lines, helping calm investors rattled by turmoil in
the banking sector. The failure of two U.S. banks and a rout in Credit
Suisse shares have sent shock waves through markets over the past week.
UBS will pay $3.2 billion for 167-year-old Credit Suisse and assume at
least $5.4 billion in losses from unwinding its portfolio of derivatives
and other risky assets. Credit Suisse had a market value of about $8
billion at the close on Friday.
Holders of Credit Suisse’s Additional Tier 1 bonds will get wiped out
and in a controversial move will come secondary to equity holders who
will receive at least some UBS shares.
It marks a radical twist of fate for the banks. During the great
financial crash, it was UBS and not Credit Suisse that needed state
The banks' fortunes have diverged sharply over the past year. UBS earned
$7.6 billion in profit in 2022, while Credit Suisse lost $7.9 billion.
Credit Suisse's shares were down 74% from a year ago, while UBS's are
UBS becomes the undisputed global leader in managing money for the
wealthy, with UBS’s leading position in China now complemented by Credit
Suisse’s strength in the rest of Asia, the fastest growing region. UBS
also gets to keep the jewel in Credit Suisse’s crown, the domestic bank.
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Chairman of the Board of Directors of
Credit Suisse, Axel Lehmann, Chairman of the Board of Directors of
UBS, Colm Kelleher and Federal Councillor and chief of the finance
federal department Karin Keller-Sutter attend a news conference on
Credit Suisse after UBS takeover offer, in Bern, Switzerland, March
19, 2023. REUTERS/Denis Balibouse
"In the past, when a deal between Credit Suisse and UBS was
discussed, a sticking point would be concentration, especially in
the domestic market," said Morningstar’s Scholtz. "It is also the
most stable part of the business, that generates quite a lot of
cash. If UBS is not required to do an IPO of it, it could make sense
for them to keep it, there are lots of synergies."
UBS is also taking out a big competitor in securities trading. UBS
earned $7.1 billion in revenue from buying and selling stocks,
currencies and bonds. Credit Suisse posted about$3.2 billion last
STILL SWISS Credit Suisse's demise has been a blow to Switzerland's
reputation for banking and sent shockwaves through global finance.
At a press conference announcing the deal, finance minister Karin
Keller-Sutter defended the rescue, saying it was good for Credit
Suisse account holders, including her. She said she also banked with
UBS. That choice of banks will soon end.
"This solution has risks," she conceded, playing down any concerns
about the size of the new bank, arguing that any alternative to
resolve Credit Suisse's problems risked "irreparable economic
Seated to her right, UBS Chair Colm Kelleher said the new group
would be trimmed of risks, such as investment banking, to fit UBS's
"A new UBS will remain rock solid," he said.
Credit Suisse's Chair Axel Lehmann, in contrast, was downcast as his
bank proved unable to bounce back from a series of scandals and
losses. Late last year, speculation that the bank would go bust
drove clients to pull tens of billions, sealing its fate.
He described Sunday as a "historic, sad day."
Employees at the headquarters in Zurich are bracing for massive job
cuts, with 10,000 positions potentially on the line, sources told
Reuters on Saturday.
Still, it won't be all plain sailing for UBS.
The bank faces risks to complete the deal, potential litigation
charges while regulators may ask the lender to hold more capital in
the future, said analysts at Jefferies.
Crucially, management will be distracted by this deal for many
months, maybe years, they said.
"We will change, but we will not change that much," said UBS Chief
Executive Officer Ralph Hamers, who will lead the new banking
behemoth. "We will still be Swiss."
($1 = 0.9268 Swiss francs)
(Reporting by John O'Donnell and Stefania Spezzati; Additional
reporting by Carolina Mandl, Chiara Elisei, Lananh Nguyen, Saeed
Azhar and Tom Sims; Writing by Elisa Martinuzzi)
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