UBS has just announced the completion of its acquisition of rival Credit Suisse, creating the largest banking merger since the 2008 financial crisis.
UBS Bank (Switzerland) announced the information in a letter to the press on June 12. This ended 167 years of independent existence of Credit Suisse.
UBS signed a deal with the Swiss government late last week that will see the government absorb the 9 billion Swiss francs ($10 billion) it incurred from the rescue of Credit Suisse. This is the final major hurdle to completing the merger, helping UBS maintain market confidence during the transition.
The government support is necessary because UBS does not have much time to evaluate the deal and Credit Suisse also has many assets that are difficult to value. Currently, UBS will have access to all of Credit Suisse's books, customers, and loans, from which to assess which businesses will be closed. The merger is considered complicated, possibly causing thousands of employees to lose their jobs.
UBS and Credit Suisse buildings in Zurich (Switzerland). Photo: Reuters
In March, UBS agreed to take over Credit Suisse for more than $3 billion, through an emergency arrangement with the Swiss government. Credit Suisse was in a crisis of confidence and was suffering from massive withdrawals from clients. Taking over Credit Suisse would have earned UBS tens of billions of dollars.
UBS said it would plan to reduce risk in its investment banking business and would control how Credit Suisse employees work with clients. In particular, UBS would apply its own risk rules — which are more stringent — to some loans and clients.
As head of the combined bank, UBS CEO Sergio Ermotti now faces the task of integrating two banks with overlapping businesses and deciding which operations to divest. Ermotti said that because the two banks have different risk appetites, UBS may not take on all of Credit Suisse's clients. Chairman Colm Kelleher also said employees will be evaluated through a "cultural lens" to ensure they fit with UBS.
“We will not sacrifice our culture, our risk perspective or the quality of our services. Many are counting on us to complete this merger,” UBS said in the letter today.
UBS has not yet decided on the future of Credit Suisse’s Swiss business, which remains profitable and plays a large role in lending to Swiss people and businesses. UBS said it would make a decision in the third quarter of this year.
Ha Thu (according to Bloomberg)
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