UBS Group has unveiled plans to fully integrate the domestic bank of Credit Suisse, elevating its cost-saving endeavors to surpass $10 billion across the group. This development comes alongside the release of UBS’s first earnings report since the acquisition of its Swiss counterpart, revealing an astonishing net profit of $29 billion for the second quarter. This impressive gain can be attributed to a one-time profit resulting from lower-than-anticipated acquisition costs compared to Credit Suisse’s valuation.
UBS had the option to spin off the acquired business and pursue an initial public offering (IPO); however, the consistent profitability of the domestic bank, with Credit Suisse reporting positive financials last year, influenced the decision to merge the entities. In a statement, UBS Chief Executive Sergio Ermotti affirmed, “Our comprehensive analysis demonstrates that full integration stands as the optimal outcome for UBS, our stakeholders, and the Swiss economy.” Ermotti further elucidated that the two Swiss institutions will continue to operate independently until their planned legal integration in 2024. The gradual transition of clients onto UBS systems is projected to conclude by 2025.
The projected cost-savings exceeding $10 billion by the close of 2026 represent an enhancement over the initial estimate of $8 billion by 2027. The majority of these savings are anticipated to stem from a reduction in workforce. UBS has indicated that the process will commence with 1,000 job cuts toward the end of 2024, accompanied by an additional 2,000 redundancies necessitated by the extensive restructuring of Credit Suisse.
The news of the integration had a remarkable impact on UBS’s stocks, propelling them to their highest value since October 2008. This surge translates to a 36% increase thus far in 2023. Analysts from Deutsche Bank acknowledged the present challenges faced by the group while retaining confidence in a favorable mid-term scenario. In a note, they likened the situation to a “construction site in the near term.”
An essential determinant of the merger’s success for UBS will be its ability to retain existing Credit Suisse clients. Initial figures showcased net asset outflows amounting to 39 billion Swiss francs for Credit Suisse. However, UBS reported that these outflows occurred at a slower pace than the previous quarter and reversed course in June. In the realm of global wealth management, the second quarter witnessed an impressive influx of $16 billion in net new assets – a level not observed during this period in the past ten years.
The amalgamation of UBS and Credit Suisse, orchestrated under the guidance of Swiss regulatory authorities, comes with both prospects and perils. The intricate nature of the deal, coupled with workforce reductions and the downsizing of Credit Suisse’s investment banking operations, introduce complexities to the process. Despite these challenges, the Swiss banking entities appear resolute in their near-term outlook following their maiden earnings report post-merger. Confidence remains palpable as UBS and Credit Suisse navigate the intricate path they have embarked upon.