Credit Suisse: Did UBS Get a Bargain? – Business

If you believe Sergio Ermotti, the old and new head of the Swiss bank UBS, then the country’s largest financial institution sacrificed itself when it took over its struggling rival CreditSuisse. It is a kind of “ultimate redress” for the government bailout of UBS in the financial crisis. At that time, Switzerland had to absorb UBS. Today the bank is “part of the solution” and this is a sign of strength.

Ermotti, that much is clear, presented himself as a savior on Monday and wanted to spread optimism on the occasion of the bank’s quarterly figures. “The UBS“, according to the Swiss, who the board of directors of the bank had just brought back to the top, “is stronger than ever”. His predecessor, the Dutchman Ralph Hamers, was no longer expected to take over. Ermotti should now fix it.

In fact, the solution that the Swiss government and supervisors had to push through that weekend at the end of March scares many Swiss. The result is a giant bank, twice the size of the country’s gross domestic product in terms of total assets. A solution that the Swiss finance minister tried to sell as “market economy” despite state guarantees and liquidity support from the central bank, because apparently they had not dared to wind down the bank according to plan. “A zombie is gone, but a monster is born”, wrote the Swiss newspaper NZZ – only recently declined that too Swiss Parliament the billions in guarantees for it. A defeat for the government, even if this probably has no consequences.

But UBS could also have gotten a bargain: it only pays three billion francs for Credit Suisse, but gets it 54 billion francs book value; including 16 billion from subordinated bonds of Credit Suisse, which the Swiss government coaxed for Credit Suisse as part of the emergency rescue. If the equity is actually worth as much as it says on the balance sheet, that sounds like a good deal. The takeover will also bring UBS further forward in the international wealth management market, said Ermotti, who is said to have toyed with the takeover earlier.

UBS’s willingness to make sacrifices has limits

However, the matter will probably not be a sure-fire success. That’s what they revealed Quarterly figures that Credit Suisse published independently on Monday. Because the takeover will probably not be completed until May or June, the two banks are still reporting their results separately. However, Credit Suisse reported outflows of around CHF 61 billion for the first quarter – and also that customers continued to withdraw funds even after the announcement of the takeover, up to and including Monday this week. All business areas developed worse, even the Swiss business, which was always considered a pearl, weakened.

And UBS was probably not quite as strong in the first quarter either. Even if, according to the figures, around a third of the money that had flowed out at Credit Suisse ended up at UBS. Shouldn’t it have been more? Have you already been distracted by the turbulence of the rival and from mid-March by the takeover? In any case, it crunched in almost all business areas: Apart from the Swiss business, earnings fell everywhere else, costs rose. At the same time, the takeover apparently caused enormous consulting costs of 70 million euros in the first few days – an item that is likely to increase. The profit shrank to the equivalent of 900 million Swiss francs. UBS shares first fell significantly on Tuesday and then recovered again.

And yet Ermotti repeatedly emphasized how beneficial the deal is not only for society but also for shareholders. One should look at the facts, leave emotions out. And you should be patient with a view to the future strategy. On the other hand, UBS’s willingness to make sacrifices during the takeover did not go so far as to waive a state guarantee of nine billion francs for risky securities from the Credit Suisse settlement bank. These will not be due until losses exceed five billion, but this was part of the negotiations. As is the expropriation of Credit Suisse’s subordinated creditors, who lost 16 billion Swiss francs. Many of them have filed a lawsuit. Who stands up for it, should they get it right? The state, UBS? Probably not the latter, Ermotti hinted. It was said that they were not involved in the decision. The Swiss taxpayers must therefore continue to tremble.