UBS Group AG has outlined the main goals of integration with its former competitor Credit Suisse.
The financial institution, which is based in Zurich, recorded a pre-tax profit of $29 billion in the second quarter. This figure is the result of the accounting difference between the price UBS paid for Credit Suisse for $3.8 billion and the value of the acquired bank’s balance sheet. The profit for the second quarter was the largest in the history of a financial institution.
The lender also said that the local unit of Credit Suisse will be completely absorbed by the parent company. The financial institution stated that the brand of the acquired bank is likely to cease to exist by 2025. At the same time, the option of selective use of this brand is not excluded.
UBS Chief Executive Sergio Ermotti is currently working on the implementation of one of the largest mergers in the history of global finance. He has to balance between the opportunities of client assets, which have increased by more than $ 5 trillion, and the risks resulting from a failed business strategy applied by Credit Suisse.
The deal under which UBS acquired its former competitor was concluded in March in an emergency mode. Haste is because Credit Suisse found itself facing a border beyond which the activity within acceptable limits of efficiency ends and bankruptcy begins. Customers have lost confidence in the lender, whose history began 167 years ago. Sergio Ermotti, while talking to the media, said that in this case there is no place for nostalgic feelings about the former prosperity, which has turned into an exclusive memory. He stated that UBS is implementing its strategy and making very good progress.
Investors and clients of a financial institution from Zurich do not dispute statements about the increase in the value of the lender’s shares by more than a third this year. Currently, this indicator is at the highest level since 2008, when the financial crisis broke out. On Thursday, August 31, in Zurich, the value of the bank’s shares increased by 7.2%.
UBS’s current action plan calls for the layoff of about 1,000 employees in Switzerland. Also, another 2,000 jobs will be distributed across the country as part of group functions. The upcoming layoffs will be a factor contributing to the reduction of the bank’s expenses by $10 billion. These efforts are part of a large-scale reorganization of the lender’s business, due, among other things, to the emergency acquisition of Credit Suisse.
The decision of the financial institution to reduce the workforce has been the subject of discussion in Switzerland. Part of the public and some politicians negatively assessed the acquisition of Credit Suisse, because of this consequence. However, the situation in March of this year did not provide a wide range of options for action, which is why it is incorrect to talk about any fault of UBS. Sergio Ermotti said that the dismissal campaign will be implemented for several years. He also stated that those employees who will be affected by the reduction of the workforce will be provided with financial support, retraining opportunities, and employment services.
The acquisition of Credit Suisse increased UBS’ headcount to approximately 120,000 people. The media reports that the bank’s ultimate goal is to reduce the workforce by about 30%.
The bank’s reported profit for the quarter eclipses JPMorgan’s profit of $14.3 billion in the first quarter of 2021, which was a record for the American and European banking sectors. Nicolas Payen, an analyst at Kepler Cheuvreux, said that the financial result of $ 29 billion was less than the expected level of profitability. He said that the indicator, which does not correspond to the initial forecasts, is the result of operating losses Credit Suisse and purchase price adjustments. At the same time, according to him, the stabilization of the business exceeded the expected pace.
In August, UBS made an unexpected decision to voluntarily abandon the social protection system, which was agreed as part of the acquisition of a competitor, including government support for $9.4 billion. This measure makes the bank more flexible in terms of the possibilities of action.
UBS, not missing the opportunity to focus attention on the fundamental strength of its business, is gradually preparing investors for the integration of a competitor, which should largely be completed by the end of 2026. The financial institution strives to ensure that by the mentioned time the cost-to-income ratio will not exceed 70%. The upcoming process is very complex and, in a symbolic sense, comparable to a construction consisting of many elements. The Bank will have to migrate customers, assets, and infrastructure of Credit Suisse.
Sergio Ermotti said that about half of the $10 billion saved by 2026 will be received as a result of the restructuring of the investment lender and the reduction of non-core assets. The other part of these funds will be a kind of result of actions within the framework of the remaining operations of the financial institution.
UBS said that the liquidated division, which includes enterprises that were part of the Credit Suisse ownership structure and proved incompatible with the strategy of the new owner, had risk-weighted assets worth about $55 billion at the end of the quarter.
Bloomberg Intelligence analyst Alison Williams said that the bank’s results for the second quarter indicate a successful acquisition of Credit Suisse. The financial institution has decided to maintain and integrate the competitor’s wealth stabilization unit, which will allow it to benefit from its increased scale and competitive leadership in the domestic market.
Analysts at Vontobel Holding AG note that UBS faces a huge task of restructuring Credit Suisse, integrating staff, retaining customers, and resolving litigation issues of the acquired bank, which will require significant management attention and will take a lot of time.
Credit Suisse in recent years, before being on the verge of bankruptcy, faced many scandals and repeatedly became involved in proceedings for violation of laws, which hurt its profits and caused some customers to refuse to interact with the lender. The merger of this bank with UBS creates a large financial institution, whose share in the Swiss market is about 30%, and whose assets are about twice the volume of economic production of this country.
As we have reported earlier, UBS to Pay Over $1 Billion to Settle Fraud Claims.