Thousands of bank employees are about to lose their jobs

Switzerland's largest bank UBS has agreed to acquire Credit Suisse after the bank was mired in scandal, losses and crisis, especially after the bankruptcy of Silicon Valley Bank (SVB) and Signature Bank in the US.

The deal, which the Swiss government has been trying to broker for days, signals the stunning collapse of an institution that was once a symbol and source of pride for Switzerland. UBS told analysts it did not even have time to fully assess the financial implications of buying Credit Suisse.

This is perhaps the most sweeping overhaul of the global banking sector since the 2008 financial crisis, when financial giants were bought out by rivals to avoid disaster.

Here are the key points of the deal reached on March 19, after intense negotiations involving the government, financial regulators and the Swiss central bank.

World - UBS acquires Credit Suisse: Thousands of bank employees are about to lose their jobs — UBS has not had time to fully assess the financial implications of buying Credit Suisse. Photo: NY Times

Key Terms

On March 17, Credit Suisse was valued at about $8 billion. However, under the March 19 agreement, UBS will pay the bank only $3.25 billion, about 60% lower than the figure announced two days earlier. Credit Suisse shareholders will also receive $0.82 per share, lower than the $2.01 price at the close of trading on March 17.

Under the new deal, all additional tier 1 (AT1) bonds worth around 16 billion Swiss francs ($17.3 billion) will be reduced to zero, meaning bondholders will suffer more losses, even though they are considered preferred creditors in the event of a bank failure.

The deal is expected to close by the end of the year, according to Credit Suisse, while UBS Chairman Colm Kelleher said UBS had no way out.

The Swiss government used an emergency decree to avoid the need for shareholder approval. The Swiss Competition Commission also had no say in the extraordinary merger between the country's two largest banks.

Mr. Kelleher and Mr. Ralph Hamers, CEO of UBS, will retain their positions in the combined organization. Credit Suisse's management will also remain in place until the deal closes, according to a representative of FINMA, the Swiss regulator. After that, the bank's future will be up to UBS.

Business direction

UBS is very interested in Credit Suisse's asset management business in Switzerland, but is not very interested in the bank's investment banking division, according to UBS Chairman Kelleher.

“The combination of the two banks further strengthens UBS’s position as a leading global asset manager, with more than $5 trillion in assets under management, which will be invested in the most attractive growth markets,” said Mr. Kelleher.

World - UBS acquires Credit Suisse: Thousands of bank employees are about to lose their jobs (Image 2). — UBS Chairman Colm Kelleher (right) shakes hands with Credit Suisse Chairman Axel Lehmann (left) after a press conference announcing the merger of Switzerland's two largest banks on March 19, 2023. Photo: Japan Times

UBS is determined to retain Credit Suisse’s profitable Swiss business, despite concerns about the deal’s domestic focus, Kelleher said. But Credit Suisse’s investment banking business would shrink, dashing the dream of spinning off CS First Boston as a standalone unit.

“UBS intends to scale back Credit Suisse’s investment banking business and align it with our risk-averse culture,” Mr. Kelleher said at a press conference announcing the merger.

Mass layoffs

Mr Kelleher said it was too early to know the number of job cuts, but UBS had given indications that the number would be large.

UBS chairman said he understood the coming months would be difficult for Credit Suisse employees, and affirmed that the bank would do everything in its power to end the current turmoil as soon as possible.

UBS plans to cut more than $8 billion in annual costs between now and 2027, equivalent to nearly half of Credit Suisse's costs by 2022.

According to Swiss Finance Minister Keller-Sutter, the merger will affect thousands of Credit Suisse employees, even causing them to lose their jobs in the future.

Credit Suisse plans to lay off 9,000 people in January 2022. By the end of 2022, the bank will have 50,000 employees, including 16,000 in Switzerland. UBS, meanwhile, has 74,000 employees worldwide.

World - UBS acquires Credit Suisse: Thousands of bank employees are about to lose their jobs (Figure 3). — The Swiss National Bank has lent Credit Suisse $54 billion but failed to reassure investors and customers. Photo: ingcom

Government sponsorship

Credit Suisse said on March 15 that it would borrow nearly $54 billion from the Swiss National Bank to stave off disaster after its shares fell more than 30% at one point. However, this effort failed to reassure investors, so the Swiss government had to contact UBS to ask the bank to consider buying Credit Suisse.

To facilitate the deal, the Swiss government has pledged to provide UBS with guarantees worth more than $9.7 billion to cover potential losses from the assets it takes over.

The Swiss government’s commitment was necessary, Kelleher said, because there was too little time to assess Credit Suisse’s value. In addition, some of the assets that UBS planned to repossess from Credit Suisse were difficult to value on the books.

If UBS makes a loss, the bank will bear the first 5 billion francs, and the federal government will support the next 9 billion francs. Any subsequent losses, if any, will be borne by UBS.

According to Mr. Kelleher, the government guarantee is part of an “insurance policy,” and UBS will not resort to that mechanism unless absolutely necessary .

Nguyen Tuyet (According to Bloomberg, Yahoo!News, NY Times)

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