The major Swiss bank UBS received billions in additional customer funds after the emergency wedding with its failed competitor Credit Suisse in mid-March. However, their profit was halved due to provisions for a legal dispute in the USA, as announced by UBS in Zurich. The bank has not yet presented a comprehensive strategy for the integration of CS.
In the first quarter, UBS received $28 billion (25.32 billion euros) in new money, including seven billion in the last ten days of March, i.e. after the announcement of the takeover of CS. Profits shrank to $1.03 billion. The provisions are about legacy assets from the business with junk mortgages from the time before the financial crisis. According to bank boss Sergio Ermotti, talks with the US Treasury Department are “well advanced”.
What’s next for UBS?
The most important task is to come up with a good strategy quickly, says Stefan Legge, lecturer in economics at the University of St. Gallen. “Where should UBS be in five years? Uncertainty is poison for everyone. The banking business thrives on trust.” Ideally, she would integrate the fillet of CS, asset management, close risky investment banking and continue the Swiss business independently.
UBS managed $4.16 trillion in assets at the end of March. Together with the CS business, it would be over five trillion dollars – making UBS by far the largest wealth manager in the world. However, Legge sees the risk of outflows. “Wealthy people may have had money with UBS and Credit Suisse in the past, because they don’t want to put everything on one card. That’s why they should now withdraw some of their money and look for a new second bank to take the risk again sprinkle.”
What is added
The competition should try to snatch away customers and employees from UBS, reported the usually well-connected portal “Inside Paradeplatz”. “Our competitors are targeting the best CS consultants and specialists and their interesting customers,” a UBS employee was quoted as saying.
The coming months will be a tightrope walk for UBS. Many parliamentarians are uncomfortable with a bank whose balance sheet total is twice as large as Switzerland’s total economic output, the gross domestic product (GDP). For comparison: in Germany, the balance sheet total of the largest money house, Deutsche Bank, corresponds to about one third of German GDP. Extensive regulation is being discussed to rein in the banking industry.
With the spin-off of the CS Switzerland business, UBS could take itself out of the political line of fire, but it creates competition for itself. In addition, it would go down badly with politicians and the public if they made rubbish with it. It is speculated that the Swiss business on the stock exchange could bring in up to 15 billion francs. UBS had only paid three billion francs for CS. However, it is still unclear what risks UBS has taken on with CS. However, the government has set up a CHF 109 billion rescue package.
“Don’t copy everything the Americans do”
The banking industry wants to avert an impending regulation frenzy. Because a strong banking center is part of Switzerland’s image, banks warn against making the financial center unattractive for international managers, for example through strict bonus regulations. That’s why the head of the bankers’ association, Marcel Rohner, downplays the CS debacle: Only one out of 231 banks had a problem. One should not hastily put the reins on all banks.
But Legge doesn’t think that’s a bad thing: “Switzerland should go its own way,” he says. “You don’t have to copy everything that the Americans do. You can say that the rules of the game are different here. The returns aren’t as high here, but there isn’t a crisis every ten years either.” In view of the salaries and bonuses in the millions, he advocates bankers being liable with their private assets for the consequences of overly risky transactions.
