UBS Chairman Colm Kelleher has recently given a statement about the integration of Credit Suisse, stating that it poses significant execution risks bigger than any deal executed during the 2008 financial crisis. This is primarily due to the fact that it is the first time two systemically relevant banks are merging, which brings significant risk in its execution. The Chairman’s comments come as UBS brings back former CEO Sergio Ermotti to lead the integration of Credit Suisse.
First Time Two Systemically Relevant Banks are Merging
The merger between UBS and Credit Suisse is the largest combination of systemically important banks since the subprime lending scandal triggered the financial crisis almost fifteen years ago. According to Kelleher, this will not be easy because it is the first time two systemically relevant banks are merging, which brings significant execution risk.
Sergio Ermotti to Lead Integration as Ralph Hamers Steps Down
Sergio Ermotti returns as CEO of UBS to lead the acquisition of Credit Suisse while Ralph Hamers steps down. Ermotti previously had a decade of experience in charge of UBS, including crisis management and restructuring. He is known for shrinking the company’s investment bank and expanding its wealth management franchise. Now in his new role, Ermotti will wind down large parts of Credit Suisse’s investment bank and decide which executives, wealth managers and investment bankers to keep.
Ermotti Takes a Careful Approach to Integration
Ermotti is expected to take a careful and strategic approach towards integrating Credit Suisse. The new CEO will primarily focus on understanding the risks and exposures faced by Credit Suisse’s investment banking business during his first 90 days. According to sources within UBS, he will prioritize retaining important Credit Suisse employees in wealth management and investment banking, and may be sympathetic to a layoff timeline and the Swiss public’s concerns about the deal.
Integration Expected to Take Three to Four Years
The integration between UBS and Credit Suisse is expected to take three to four years, with estimated cost savings of $8 billion by 2027, mainly through layoffs. Wall Street has welcomed the return of Ermotti, with UBS shares up more than 3.5% in early trading.
Moody’s and S&P Global Ratings Lower UBS’s Credit Outlook
Moody’s Investors Service and S&P Global Ratings have lowered UBS’s credit outlook. This comes as a result of challenges that UBS will face during the integration process, and the risks that come with it. Both companies cited integration and restructuring challenges faced by UBS after acquiring Credit Suisse.
Losses Incurred by Credit Suisse
UBS agreed to take over troubled rival Credit Suisse on March 19 in a $3.2 billion emergency deal brokered by Swiss regulators. Confidence in Credit Suisse plummeted following the collapse of Silicon Valley Bank and Signature Bank in the United States. Investors took a massive haircut with $17 billion worth of bonds written down to zero. Shareholders in Credit Suisse received just one UBS share for every 22.48 shares in Credit Suisse that they held. Saudi National Bank confirmed that it had suffered a loss of around 80% of its $1.5 billion investment in Credit Suisse.
In conclusion, the integration between two such large banks poses significant risks for both parties involved, UBS Chairman Colm Kelleher said, especially given that this is the first time two systemically relevant banks are merging. With Sergio Ermotti back at the helm, though, there is confidence that he will carefully and strategically guide UBS through this process.
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