London Daily

Focus on the big picture.
Thursday, Apr 17, 2025

Why once 'unthinkable' UBS-Credit Suisse takeover is like merging Liverpool and Manchester United and a win-win

Why once 'unthinkable' UBS-Credit Suisse takeover is like merging Liverpool and Manchester United and a win-win

How Credit Suisse emerged from the financial crisis - via a private sector solution compared to UBS's taxpayer bailout - may have created a sense of hubris that ultimately led to its downfall, Sky's Ian King writes. But the deal to combine the two is like merging Coca-Cola and Pepsi.
To those who do not work in or follow closely the fortunes of the banking sector, it is impossible to neatly sum up the seismic nature of UBS's takeover of its Swiss rival Credit Suisse.

These two are the Coca-Cola and Pepsi of the Swiss banking world, the Liverpool and Manchester United, the McDonald's and Burger King.

Combining the pair would have been absolutely unthinkable even a few weeks ago.

It was the bitter rivalry between the two that, for example, was at the centre of the espionage scandal which, four years ago, ultimately cost Tidjane Thiam, a former Credit Suisse chief executive, his job.

The two banks watch each other like hawks and constantly compare themselves with the other.

Never was this more the case than in the wake of the global financial crisis.

UBS required a bail-out from Swiss taxpayers while Credit Suisse, which was offered the same terms by the Swiss government, engineered a private-sector solution that appeared to leave it in better shape than many European lenders.

That may in turn have created a sense of hubris at Credit Suisse that ultimately led to the events of this weekend.

For it meant that when other banks began to retrench and dial down their appetite for risk post-2008 - no more, perhaps, than UBS itself - Credit Suisse, under its then chief executive Brady Dougan, continued with comparatively riskier activities.

More than a decade of tripping over every banana skin

In the decade and a half that followed the rescues of the banking crisis, Credit Suisse found itself tripping over every potential banana skin around.

Apart from the corporate espionage scandal, it lost $5.5bn when the hedge fund Archegos Capital collapsed and racked up further losses when the British supply chain finance business Greensill Capital collapsed.

It was fined for making fraudulent loans, nicknamed 'tuna bonds', to the government of Mozambique between 2012 and 2016 and again when Swiss courts ruled it had failed to stop money laundering by Bulgarian drug smugglers.

Other corporate mishaps included the resignation of its former chairman Sir Antonio Horta-Osorio, best known for his distinguished stint as Lloyds Banking Group chief executive, after he was found to have breached COVID protocols.

You get the picture.

This is a bank that has stumbled from one crisis to another in the past 15 years - but the rot arguably set in immediately after the financial crisis because Credit Suisse's management, led by Mr Dougan, failed to recognise that the world had changed.

A risk-taking, buccaneering culture

While the likes of UBS pivoted to less risky activities, such as wealth management, Credit Suisse largely carried on as it had before.

That became problematic when, obliged to set aside more capital in the wake of the financial crisis, Credit Suisse found its competitive position eroded by larger Wall Street giants able to access more capital.

That in turn prompted Credit Suisse to take ever greater risks as its returns began to lag behind those of the Wall Street giants.

To the management of UBS now falls the task that eluded successive Credit Suisse chief executives - stripping away the risk-taking, buccaneering culture at the heart of the bank and making it altogether more boring.

It is a task that is likely to involve heavy job losses in the investment banking division of Credit Suisse, which employs more than 5,000 people in the UK, the majority of them based at London's Canary Wharf.

Tantalising prospect for UBS after the short-term risks

There are plenty of risks involved here for UBS.

The Swiss government has guaranteed losses of up to CHF9bn (£7.94bn) on some portfolios of assets it is taking on from Credit Suisse.

However, those guarantees only kick in after UBS has borne some CHF5bn (£4.41bn) of losses itself. That is why UBS shares fell by as much as 16% shortly after trading began this morning.

What is interesting though is that, as the day has gone on, shares of UBS have clawed back the majority of those losses as investors focus on the longer-term potential benefits.

Because yes, while UBS is taking on a great deal of risk and will see its profits diluted in the short term, it is ultimately going to emerge with a much more powerful position in key markets.

As equity analysts at the investment bank and brokerage Jefferies International told clients this morning: "We think the objective of this transaction, while solving Credit Suisse's situation and associated risks for the system, is to reach a win/win where UBS shareholders also get value out of this deal over time.

"The low price paid (CHF3bn) and significant safety net provided to UBS (with government guarantee) are positive, while UBS's strategy is unchanged."

And that's the point here.

UBS is getting a gigantic banking business for just a fraction of its book value - which stood at CHF41.8bn as of the end of last year - and, more to the point, will boost its market share in key areas.

For example, the combined pair will control 30% of the domestic banking market in Switzerland.

Nowhere is this more the case than in wealth management - the field which UBS has increasingly treated as its priority.

Andrew Haslip, head of wealth management at the data provider Global Data, points out that the combined private bank would have had assets under management of $4trn at the end of last year - or 6.2% of the so-called high net worth market.

He added: "While on paper this move looks like a fairly neat solution with minimal government intervention, it is likely to cause significant competitive issues.

"The combined Swiss bank's nearest private wealth rivals Morgan Stanley (with 2022 global assets under management of $1.7 trillion) and Bank of America (with 2022 global assets under management of $1.4trn) would only equal 78% of its private wealth assets under management taken together."

Julius Baer - the closest Swiss bank competitor - ended 2022 with $458.6 billion.

"These are all impressively large client portfolios but are vastly dwarfed by the combined UBS/Credit Suisse."

In that sense, this deal has shades of the merger between Lloyds Banking Group and HBOS, engineered by the then prime minister, Gordon Brown, at the height of the financial crisis.

The short-term pain for shareholders of Lloyds proved immense and the bank ended up receiving support from UK taxpayers.

Longer term, however, Lloyds benefited from being able to take control of a rival that it would never have been allowed to buy in normal times.

The merger has left the enlarged Lloyds with near-impregnable positions of UK market leadership in an array of banking products, including current accounts, savings accounts and mortgages.

That is the tantalising prospect, longer term, for those UBS shareholders currently cursing their government and the bank's management for denying them a vote on this crucial deal.
Newsletter

Related Articles

0:00
0:00
Close
U.S. State Department Raises El Salvador’s Safety Ranking, Making It Safer Than France and Other European Nations
UK Government Assumes Control of British Steel's Scunthorpe Plant Amid Shutdown Threat
UK MP Wera Hobhouse Denied Entry to Hong Kong During Family Visit
Bangladesh Issues Arrest Warrant for UK MP Tulip Siddiq
China Urges United States to Cancel Tariffs Amid Escalating Trade Tensions
The Empire’s USD Pyramid Scheme Is Working Brilliantly—So Why ‘Fix’ It?
China Raises Tariffs on U.S. Goods to 125% Amid Escalating Trade Dispute
Elon Musk Reports $150 Billion in Projected Government Savings Amid Fraud Investigations
U.S. and Panama Finalize Defense Agreements Amid Canal Access and Chinese Influence Concerns
China Stands Firm Amidst Trade Disputes with the US: A Factual Analysis
U.S. Tariff Escalation Sparks Global Trade Tensions
Helicopter crashes in NYC with four people on board.
Australia Dismisses China's Suggestion to Collaborate Against US Tariffs
EU Postpones Response to US Tariffs
The Trump Administration is contemplating removing Chinese companies from U.S. stock exchanges.
Violent Incidents and Public Safety Concerns Escalate in London and County Durham
UK MP Arrested on Suspicion of Rape and Child Sex Offences
UK Gears Up to Respond to US Tariffs with Industrial Strategies and Trade Initiatives
‘Rocky’ star Dolph Lundgren and his wife Emma Krokdal bask in the Miami sunshine following the actor’s lengthy health struggles.
Spain Encounters Countrywide Protests as Housing Crisis Intensifies
Alisha Lehmann's Modeling Campaign and Public Controversy Stir Debate Ahead of UEFA Women's Euro
U.S. Firms with Major International Revenue Exposure in Light of New Tariffs
President Trump Calls on the Federal Reserve to Reduce Interest Rates in Light of New Tariffs
President Trump Prolongs TikTok Sale Deadline by 75 Days
Global Markets Dive Amid Rising U.S.-China Trade Conflicts
British comedian Russell Brand faces charges of rape and several sexual assaults.
Kanye West Reveals in a New Song That His Wife Bianca Censori Has Departed from Him
Actor Jean-Claude Van Damme Accused of Having Sex with Human Trafficking Victims
Tom Cruise Pays Tribute to Val Kilmer at CinemaCon
Europe Pursues Digital Autonomy Amidst Transatlantic Strains
OpenAI Lands Unprecedented $40 Billion Funding.
Charity Chairwoman Accuses Prince Harry of Bullying and Harassment
DOGE revealed that USAID provided $84 million to the Clinton Foundation. Of this amount, $3 million was spent on Chelsea Clinton's wedding, and $10 million was used to acquire a lavish mansion.
The State Department has announced the formal closure of USAID.
Apple's Innovation Deficit: Falling Behind in AI and Foldable Technology as Chinese Developments Progress
President Trump Proposes Military Intervention to Obtain Greenland
Passenger Taken into Custody After Engaging in Masturbation on SWISS Air Flight
Barcelona player Dani Alves found not guilty of rape accusations.
PUTIN'S LIMOUSINE DETONATES—SECURITY CHAOS ENSUES
French Foreign Ministry Denounces U.S. Interference in Corporate Diversity Initiatives
Copyright Issues Emerge as AI-Generated Studio Ghibli Images Gain Popularity
This is what we refer to as CREATIVITY.
Removing the Political Opponent Means Dismissing the Remnants of Turkey's Economy.
Malaysia Strengthens Semiconductor Regulations in Response to U.S. Pressure to Restrict AI NVIDIA Chip Exports to China.
OpenAI Launches New Image Generation Tool for ChatGPT
Ex-FIFA President and French Football Icon Acquitted of Corruption Allegations
National Security Advisor Mike Waltz Under Investigation After Journalist Added to Secret Military Chat
Ex-Business Partner of Hunter Biden Discusses Possible Pardon from President Trump
U.S. Attorney General Announces Task Force to Prosecute Government Fraud
American Brands Face Consumer Boycott in Europe Amid Escalating Trade and Political Tensions
×