UBS, Switzerland’s biggest investment bank, has brought back former CEO Sergio Ermotti to take charge of the integration process after it agreed to take over rival Credit Suisse in a $3.2 billion emergency deal brokered by Swiss regulators.
The Challenges of Integrating Two Swiss Banks
The UBS acquisition of Credit Suisse is the largest such combination of systemically important banks since the subprime lending scandal triggered the financial crisis almost fifteen years ago. UBS Group AG Chairman Colm Kelleher says that integrating Credit Suisse is bigger than any deal executed during the 2008 financial crisis. The task facing Sergio Ermotti, who successfully led UBS for nine years until 2020, is enormous.
Key Factors in the Acquisition
UBS Group AG acquired Credit Suisse Group AG with support from the government, the Financial Market Supervisory Authority (FINMA), and a $55 billion central bank loan. Investors took a massive hit with $17 billion worth of bonds written down to zero while shareholders in Credit Suisse received just one UBS share for every 22.48 shares they held. Saudi National Bank was also among the casualties and suffered an 80% loss on its $1.5 billion invested in Credit Suisse.
Ermotti’s Strategy for Integration
Ermotti is an investment banker first and has been credited with successfully guiding UBS through numerous challenges after the Global Financial Crisis. The integration process is expected to take three to four years, with annualized cost savings of $8 billion by 2027, mostly through layoffs. Ermotti is likely to focus on understanding risks and exposures in Credit Suisse’s investment banking business and retaining important employees in wealth management and investment banking as over 20,000 to 25,000 jobs are likely to be cut in the process.
Challenges of the Integration Process
According to Kelleher, executing the UBS-Credit Suisse merger will face significant challenges, including the possible importation of “bad culture” from Credit Suisse. Credit Suisse’s investment bank will also be wound down while talented investment bankers in Credit Suisse will be seamlessly integrated with UBS’s investment banking system.
Wall Street’s Reactions
Wall Street appears to be positive on Ermotti’s return as CEO, with UBS shares up over 3.5% in early trading. Andreas Venditti believes that Ermotti is the right person for the challenging task of integrating Credit Suisse given his experience of successfully transforming UBS after the Global Financial Crisis.
Earnings Growth Forecast for 2027
The purchase of Credit Suisse is expected to contribute to earnings growth by 2027, and although S&P Global Ratings and Moody’s Investors Service lowered UBS’s credit outlook after the acquisition was announced, citing integration and restructuring challenges, analysts expect UBS to overcome these challenges successfully.
In conclusion, Sergio Ermotti’s return as CEO of UBS comes at a crucial time for Switzerland’s financial sector as it navigates through the process of integrating Credit Suisse under considerable pressure from regulators and investors alike. With his experience as a successful investment banker and his deep understanding of Switzerland’s financial services industry, Ermotti is ideally placed to lead this critical initiative.
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