UBS Seeks to Maximize $29 Billion Credit Suisse Windfall

UBS Seeks to Maximize $29 Billion Credit Suisse Windfall

UBS Seeks to Maximize $29 Billion Credit Suisse Windfall (Source: Shutterstock)

So far things are looking bright for UBS and investors and clients agree. The shares are increasing more than a third this year and are expected to hit the highest since the 2008 financial crisis

UBS Group announced significant targets for the integration process of Credit Suisse including almost 3,000 domestic job cuts and cost savings exceeding $10 billion. UBS also posted the biggest-ever quarterly profit for a bank because of a bargain acquisition that happened in June. In the second quarter, the financial institution posted a $29 billion profit before tax. This is the result of an accounting difference between a $3.8 billion price UBS paid for Credit Suisse and the value of the acquired lender’s balance sheet. UBS has also confirmed the absorption of Credit Suisse completely most likely by 2025. 

Sergio Ermotti, UBS’s Chief Executive Officer is working on the implementation of one of the biggest mergers in the history of the sector or maybe in global finance. The rest of the operations must be conducted as the balancing of chances from a client asset pile that’s now increased to $5 trillion along with risks handed down from Credit Suisse’s failure. The UBS deal to acquire Credit Suisse was a rather hasty decision after the latter struggled to gain consumer confidence, ending a 176-year journey. In an interview with Bloomberg, Sergio Ermotti emphasised that there is no room for nostalgic considerations. “We are executing on the strategy, we are making very good progress”, added Mr. Ermotti. 

So far things are looking bright for UBS and investors and clients agree. The shares are increasing more than a third this year and are expected to hit the highest since the 2008 financial crisis. Their shares increased 7.2% as of Thursday. The investment banking company, as a part of the job cut plans, intends to cut around 1,000 jobs in Switzerland as a result of the overlaps in the domestic banking business. 2,000 more positions are expected to be cut in the country. The overall number of layoffs will be hard to calculate and the numbers mentioned are most likely to be a fraction of the overall.

Credit Suisse’s acquisition has increased the workforce of UBS to reach about 120,000 and intends to reduce it by 30%. UBS also mentioned closing about two-thirds of Credit Suisse. The accounting gain for the first quarter shadows JP Morgan Chase’s $14.3 billion profit in the first quarter of 2021. Analysts explain that the $29 billion accounting gain was smaller than expected following the Credit Suisse operating losses and an adjustment of the purchasing price. The stabilisation of the business, however, was happening at a faster pace. UBS CEO has turned the financial institution into a model wealth manager after having problems during the financial crisis and is aware of the political sensitiveness around the Credit Suisse deal.  

Details of the Integration

 The integration process is expected to be substantially complete by the end of 2026. The entire process will involve a resettling of its clients, infrastructure, assets, and liabilities. About half of the $10 billion cost savings will happen from the restructuring of the investment bank and running down assets that are not in use anymore.

UBS mentioned that the wind-down unit had almost $55 billion of risk-weighted assets at the end of the quarter. $8 billion in positions had also been exited during the quarter. Experts mentioned that UBS had taken a huge risk in taking over Credit Suisse. This is a big task as UBS would have to retain its clients, integrate the key staff, migrate them to UBS’s systems, solve any litigation issues, etc. take a lot of time and energy. 

According to the firm, its global wealth management business saw strong inflows with a $16 billion figure and this was billed as the highest second-quarter figure in over a decade. The inflow of client funds turned positive in June. The release record in the final quarter recorded Credit Suisse as an independent company.                  

Exit mobile version