UBS-CS merger won’t be a good thing

UBS-CS merger won’t be a good thing.
Possible causes for doom-to-fail are:
1. their HQs are in Swiss.
2. similar core competence, that is private (wealth mgt) & investment banking services.
3. it is a transatlantic banking deal. UBS uses IFRS, while CS uses US GAAP.
4. financial watchdogs donot want to see big banks get bigger, more complicated or harder to oversee.
5. the failed merger of 2 German banks, DB and Commerzbank.

The intentional NIRP of SNB is to weaken CHF.
NIRP impacts banks on 3 things simultaneously:
-long-term pressure
-extremely difficult environment
-negative effect on economy
CS Holdings/UBS merger would face serious obstacles
Thu, Apr 11, 1996, 01:00

CREDIT Suisse Holding’s suggested merger with Union Bank of Switzerland (UBS) was greeted with scepticism yesterday as commentators cited serious obstacles to the creation of Europe’s biggest bank. Swiss newspapers said the banks had so much in common that they would not bring much new to each other.

A merger, which would create the world’s second biggest bank after Japan’s recently merged Bank of Tokyo Mitsubishi Ltd, might also be politically unacceptable because it could cost up to 10,000 jobs in Switzerland. The two banks had combined assets worth 799.5 billion Swiss francs (£419.5 billion) at the end of 1995.

The Zurich stock exchange, which gave merger talk a thumbs up on Tuesday by driving up the CS Holding and UBS share prices, had second thoughts and pushed down both banks’ shares yesterday although the overall market rose. UBS, which has confirmed discussing the merger idea with CS Holdings, said its board would meet today to discuss the proposal and planned to issue a statement afterwards.

The merger speculation began on Tuesday after a leading Swiss daily, the Tages Anzeiger, said CS Holding was trying to make UBS accept a merger by threatening to vote against UBS management at the bank’s annual meeting next Tuesday. CS Holding, parent of Credit Suisse bank, issued a statement confirming its chairman Mr Rainer Gut had raised the idea of a possible merger.
Credit Suisse CEO dismisses European bank mergers as ‘solution’
JUNE 2, 2019 3:24 PM

CEO Tidjane Thiam of Swiss bank Credit Suisse addresses the company’s annual shareholder meeting in Zurich, Switzerland April 26, 2019. REUTERS/Arnd Wiegmann

ZURICH (Reuters) – Mergers are not the best way to help Europe’s banks deal with negative interest rates, Credit Suisse Chief Executive Tidjane Thiam said in an interview published on Sunday. “That is not the solution,” Thiam told Swiss newspaper Blick am Sonntag. “Negative interest rates have created an extremely difficult environment, where many banks have come under long-term pressure. A merger here would fix nothing.”

UBS Chief Executive Sergio Ermotti said last month after Germany’s Deutsche Bank and Commerzbank called off merger talks that consolidation in the European banking industry remains inevitable. However, Thiam said he did not think that either of Switzerland’s two largest banks, UBS and Credit Suisse, would become takeover targets. The failed merger talks between Germany’s two biggest lenders prompted speculation of deals with other European banks, including UBS.

Thiam said in the interview he was not criticizing the policies of the Swiss National Bank (SNB), which has used negative rate to weaken the Swiss franc. “I am only saying that negative rates have a negative effect on the economy,” he said. Thiam, who has led Credit Suisse since 2015, said its main problems have now been settled and the bank had made great strides in reducing costs through technology. The former minister in his native Ivory Coast also ruled out a return to politics, saying a change of jobs was not on the cards and he was planning “for the long term”.

Reporting by John Revill; Editing by Alexander Smith
Our Standards: The Thomson Reuters Trust Principles.
Breakingviews – Cox: Anyone on Wall Street want a Swiss bank?
By Rob Cox, FEBRUARY 24, 20209:46 PM

ZURICH (Reuters Breakingviews) – Ever since Goldman Sachs chieftain David Solomon signalled his interest in expanding further into consumer financial services, many investors have speculated the Wall Street firm will want to buy an American bank like U.S. Bancorp or PNC Financial Services. But imagine if the target of Goldman’s affections were to reside someplace entirely different – like in Switzerland.
The logos of Swiss banks UBS and Credit Suisse are seen on a sign in Zurich, February 13, 2013.

A transatlantic banking deal probably sounds like the stuff of regulators’ nightmares. As the conventional wisdom would have it, no watchdog in Washington, Frankfurt or Bern wants to see big banks get bigger, more complicated or harder to oversee. Blending a Wall Street behemoth with a Swiss juggernaut is, therefore, hard to contemplate.

But by partnering with one of Zurich’s banking beauties, Goldman – or rivals including Morgan Stanley or Bank of America – would have a better-balanced business that is arguably safer and less dependent on risky trading. It’s basically the argument that has propelled Morgan Stanley Chairman and Chief Executive James Gorman to bulk up on wealth management, culminating in the $13 billion purchase of E*Trade he announced on Thursday.

That strategy explains why Morgan Stanley commands more market respect than its traditional nemesis. As Gorman has reduced the share of the firm’s revenue from securities trading, investors have been willing to attach a higher valuation to its shares. They now trade at 1.14 times historical book value per share, compared to about 1.06 times for Goldman. By contrast, JPMorgan, the U.S. bank that has pulled ahead of all its peers since bulking up during the financial crisis, is worth 1.8 times its book value.

But shareholders aren’t the only ones who might benefit from a Swiss-American combo. A deal could be structured in a way that would allow Swiss regulators to sleep more comfortably at night. True, UBS and Credit Suisse appear unlikely merger partners right now. Both just named new CEOs: Ralph Hamers of ING will take over from UBS CEO Sergio Ermotti in September, and Thomas Gottstein replaced Tidjane Thiam at Credit Suisse earlier this month. The new executives and their boards won’t be looking to entertain suitors. But their rivals across the Atlantic will be watching closely for any sign of a slip up.


UBS and Credit Suisse both have a domestic financial institution serving Swiss consumers and companies; an asset management arm; a global investment bank and a wealth management business catering to the world’s richest people. An American merger partner would be most interested in this last business.

UBS, with a market value of about $50 billion, is the most alluring of the two. It had a balance sheet of $972 billion at the end of 2019, with $259 billion of risk-weighted assets against which it holds $36 billion of Common Equity Tier 1 (CET1) capital. Credit Suisse, whose market capitalisation is around $35 billion, has a balance sheet of 787 billion Swiss francs ($800 billion), with 290 billion Swiss francs of risk-weighted assets – reflecting the relative importance of the riskier and more asset-intensive investment banking business – and 39 billion Swiss francs of tangible equity.

The Federal Reserve, which oversees Goldman and Morgan Stanley, would probably blanch at the prospect of either bank expanding their balance sheets by nearly $1 trillion. And even if it blessed such a union, the resulting combo would probably face a capital surcharge because its size makes it even more “too big to fail”. But there are a few ways around this.

First, Credit Suisse and UBS could spin off their domestic banks directly to shareholders. That would both reduce the cost of a takeover and reduce risk. Moreover, untethering lenders serving Swiss retail and business customers from a parent involved in trickier global operations might appeal to the Financial Market Supervisory Authority and the Swiss National Bank, which are charged with monitoring the safety and soundness of the country’s banking system.

Credit Suisse flagged the idea back in 2016, when it considered an initial public offering of a 30% stake in its Swiss bank to raise capital. The division was then run by Gottstein, now the group’s CEO. It accounts for about 78 billion Swiss francs of risk-weighted assets, some 27% of the total. At 10 times its 2019 operating profit, adjusted for one-time gains, the bank is probably worth more than 20 billion Swiss francs on its own.

The equivalent business at UBS has $67 billion of risk-weighted assets, accounting for about a quarter of the total, and made about $1.5 billion of operating income. It might be worth $15 billion. When Credit Suisse contemplated spinning off its Swiss bank, regulators wanted it to hold CET1 equal to 10% of risk-weighted assets – significantly less than the 12.7% ratio reported by the group at the end of last year. That means a spinoff could free up money for the parent.


Enough, though, about what a suitor wouldn’t keep. The prize for Goldman or Morgan Stanley would be the private wealth management business. UBS oversees $2.9 trillion of client assets, through 10,000 advisers, about half of them in the United States. The $3.5 billion of operating profit the business generated last year accounted for about 63% of the bank’s bottom line.

Contrast that with Goldman’s wealth management division, which has about a fifth the assets, and accounted for 12% of its parent’s 2019 net revenue. Absorbing its Swiss rival would reduce Goldman’s dependency on riskier, less predictable, activities like global markets or investment banking, which last year brought in 40% and 20% of net revenue, respectively. A deal would boost Goldman in an area where it lags Morgan Stanley, especially once the latter completes its purchase of E*Trade; and Bank of America, which bought Merrill Lynch during the financial crisis. UBS established itself as serving wealthy Americans with the $10.8 billion purchase of PaineWebber 20 years ago.

As established U.S. wealth managers, Morgan Stanley and BofA would be in a better position to squeeze costs out of a merger with UBS. Combining two of the three largest U.S. wealth management businesses wouldn’t be pretty and could lead to the loss of both clients and relationship managers. But slicing 10% from the Swiss bank’s operating expenses in wealth management would free up some $1.3 billion a year. That alone could justify paying a premium of nearly $10 billion to UBS shareholders, before accounting for other potential synergies.

UBS also has a $900 billion asset management division which made $532 million before taxes last year. For Goldman, that would boost its investment arm by nearly two-thirds to around $2.2 trillion. Morgan Stanley’s investment management unit ended the year with $552 billion under management and $447 million of pre-tax income. That’s not far off from Credit Suisse, which had 438 billion Swiss francs of assets under its wing, generating pre-tax profit of 473 million Swiss francs.


The last big piece of the puzzle, investment banking, is where things get knotty. Combinations in the sector almost never meet expectations, largely because the best employees leave and customers often do less business with the larger entity to reduce counterparty and concentration risk. That was the case, for instance, with Credit Suisse’s purchase of American securities firm Donaldson, Lufkin & Jenrette back in 2000. But what if the goal was not to expand market share but rather to reduce the amount of capital tied up in the U.S. arms of the two Swiss banks?

There would still be some benefits to Goldman or another investment bank from going Swiss. Credit Suisse came in seventh globally in the league table rankings compiled by Refinitiv for advising on mergers and acquisitions, syndicating loans and underwriting stock and bond deals last year. UBS came in 14th. Credit Suisse has some expertise in areas a Wall Street partner might covet, such as structured products and leveraged finance. UBS would bring depth in Asia, where it ranked 9th, just ahead of Goldman, last year. It has also launched a joint venture with Banco do Brasil that might help in Latin America. But by and large, combining investment banks would be what one executive termed “a firing squad”.

Still, as bloody as the union might be for the bankers involved, it potentially would allow for the combination to hack away at the balance sheet of the Swiss groups, particularly in the United States where the Fed requires them to hold dedicated capital against their trading businesses. In such a scenario it’s possible that a sizeable chunk, if not all, of the $15 billion in capital held by UBS Americas in June last year could be released to shareholders as the investment bank unwinds its $81 billion of risk-weighted assets.


Just because a compelling case can be made in a spreadsheet for a Swiss charm offensive, doesn’t mean it will happen. For starters, the companies have very different corporate cultures. Goldman is a former partnership founded by a Jewish émigré from Bavaria. The Swiss banks were forced to compensate Holocaust victims for dormant accounts and lost assets 20 years ago. To placate Swiss interests, moreover, any acquirer would probably need to commit to making Zurich a global headquarters for the combined international wealth and asset management businesses.

Another risk is that the billionaire customers of Swiss banks in Asia and beyond might not take kindly to having their assets managed by an American institution. Though changes to bank secrecy laws no longer give Switzerland the same edge as in years past, there is arguably a halo effect to the idea of entrusting money to a bank headquartered in neutral Switzerland, especially as the administration of U.S. President Donald Trump has aggressively used financial sanctions as an instrument of U.S. foreign policy.

Those considerations could merit selling some of the international wealth operations to another bank, such as HSBC or Banco Santander. Similarly, a U.S. owner might want to offload the Swiss private banking business, as Morgan Stanley did for compliance reasons in 2014. Finally, there’s the question of whether the Fed would let an American bank get so adventurous, even if it could make a case that a deal reduced market risk without measurably expanding its balance sheet. Goldman has yet to agree a settlement with regulatory and judicial authorities in Washington, Malaysia and elsewhere over the multibillion 1MDB sovereign wealth fund fraud. Even when it does close that chapter, the Fed could still decide to tie Goldman’s hands on doing a big deal for years to come.

For now, the prospect of a Wall Street expedition to the Alps may seem remote. But as the new brooms at UBS and Credit Suisse confront the harsh realities of their businesses, and identify their strengths, the logic may become clearer to them. Ditto for Solomon as he watches Morgan Stanley – which is watching JPMorgan – expand its domestic lead over Goldman.

Projekt Signal: Axel Weber plant UBS-CS-Fusion

Finanznews aus Zürich, Projekt Signal: Axel Weber plant UBS-CS-Fusion
Lukas Hässig, 14.9.2020

Präsident aus Deutschland hat Arbeitsgruppe eingesetzt, mit Ueli Maurer gesprochen. Deal Anfang 2021, 15’000 Jobs in Gefahr. Es wäre der grösste Deal seit 1997, als die Zürcher UBS mit dem Basler Bankverein unter Marcel Ospels Regie zusammenging. Nun ist es der Deutsche Axel Weber, der die UBS in die nächste Sphäre katapultieren will. Weber, der VR-Präsident der Nummer 1, plant zusammen mit Urs Rohner von der Credit Suisse eine Fusion.

Das Projekt heisst Signal, wie aus dem Innern der beiden Grossbanken verlautet. Axel Weber sei die treibende Kraft, sagt eine Auskunftsperson, er habe mit Finanzminister Ueli Maurer darüber gesprochen. Auch die Bankenaufsicht Finma sei im Bild über Webers Pläne. Dieser würde aufs Tempo drücken. Anfang 2021 soll die Fusion vereinbart werden, Ende 2021 würde die Schweiz einen neuen Finanzriesen haben.

Eine zweite Quelle berichtet von McKinsey, bei welcher es heisse, man sei an etwas, das „alles Bisherige auf dem Finanzplatz in den Schatten stellen“ würde. McKinsey ist seit Jahren Berater bei beiden Multis. Eine fusionierte UBS-CS würde zum führenden Bankriesen in Kontinentaleuropa. Die Gruppe könnte mit der englisch-asiatischen HSBC und den amerikanischen Häusern konkurrenzieren.
Swiss-Supernova (UBS)

Das sei das Ziel von Weber. Dieser würde über die Zeit von 2022 hinaus Präsident der neuen Schweizer Superbank bleiben. Bisher ging man vom Rücktritt Webers in zwei Jahren aus. Ein Sprecher von Weber meinte gestern auf Anfrage, man würde „Gerüchte grundsätzlich nicht“ kommentieren. Die CS reagierte nicht auf ein Email.

Der Preis für die Angestellten wäre gigantisch. Die CS beschäftigt knapp 50’000 Mitarbeiter, davon rund 15’000 in der Schweiz, bei der UBS sind es fast 70’000 global und rund 20’000 in der Schweiz. Nach einer Fusion ist mit einem Abbau von 10 bis 20 Prozent zu rechnen, also rund 15’000 oder mehr weltweit.

In der Schweiz würden von den total 35’000 Jobs wohl in einer 1. Phase mindestens 5’000 verschwinden, danach könnten es deutlich mehr sein. Sieger wären die Aktionäre. Die Investoren könnten auf steigende Kurse hoffen. Sowohl die CS als auch die UBS haben an der Börse enttäuscht. Ihre CEOs haben es nicht geschafft, die Titel attraktiv zu machen. Axel Weber treibe seine Fusionspläne mit Hochdruck voran, sagt die Auskunftsperson. Der UBS-Präsident wolle sich damit ein Denkmal setzen.
Adabei (CS)

Weber würde mit vielen über sein Vorhaben reden. Deshalb mache die angestrebte Fusion der helvetischen Finanzriesen seit Wochen die Runde. Weil Weber sich als VR-Präsident eines fusionierten Schweizer Bankhauses sehe, würde der CEO der neuen Gigabank von der CS kommen. Als Schweizer hätte Thomas Gottstein gute Chancen auf den operativen Topjob. Für CS-Präsident Urs Rohner wäre eine Fusion ein Ausweg für sein Nachfolgeproblem. Bis jetzt ist unklar, wer den Juristen kommenden Frühling beerben könnte.

Signal project: Axel Weber plans UBS-CS merger
President from Germany set up a working group and spoke to Ueli Maurer. Deal in early 2021, 15,000 jobs at risk.
Lukas Hässig, 14.9.2020

It would be the biggest deal since 1997, when Zurich-based UBS merged with Basler Bankverein under Marcel Ospel’s direction. Now it is the German Axel Weber who wants to catapult UBS into the next sphere. Weber, the number 1 board chairman, is planning a merger with Urs Rohner from Credit Suisse.

The project is called Signal, as reported from inside the two big banks. Axel Weber is the driving force, says an informant, he talked to Finance Minister Ueli Maurer about it. The banking supervisory authority Finma is also in the picture about Weber’s plans. This would push the pace. The merger should be agreed in early 2021, and at the end of 2021 Switzerland would have a new financial giant.

A second source reports from McKinsey, which says that one is involved in something that “would overshadow everything that has existed in the financial center”. McKinsey has been a consultant for both multinationals for years. A merged UBS-CS would become the leading banking giant in continental Europe. The group could compete with the Anglo-Asian HSBC and the American houses.
Teodoro Cocca: «The Advantages of Merging UBS With Credit Suisse»
Tuesday, 4 June 2019 06:33

Under what conditions would it make sense to merge the two big Swiss banks? Swiss Finance Professor Teodoro Cocca has agreed to write for and this is his first contribution. Teodoro D. Cocca is a professor for banking at Johannes Kepler University in Linz and adjunct professor at Swiss Finance Institute. The language of the stock exchange makes for plain reading: the shares of the big universal banks are not the flavor of the time. Only carmakers have an even less attractive valuation than European banking shares, which says it all about of their less than glorious outlook.

The failure to merge Deutsche Bank and Commerzbank, as well as speculation involving other banking groups point toward an imminent wave of consolidation in European banking. This wave won’t stop at the big two Swiss banks, UBS and Credit Suisse, both of which have a low valuation on the stock.

Mergers Don’t Generate Added Value

The question is whether investors profited when banks merged in the past. The extensive research on this topic suggests that bank mergers within a country led to an increase in value. Acquisitions across European borders also created value, under certain circumstances. Mergers across the Atlantic ocean, however, are seen more critically, as have shown the experiences of the big Swiss banks. A megabank created through a takeover can indeed profit from economies of scale in production, but will also be faced with diseconomies of scale in the governance of the complex structure. The former typically is overestimated, the latter underestimated.

Far-Reaching Changes

It is tempting to toy with the idea of UBS and Credit Suisse in the context of a possible wave of consolidation. Looking at the probability of its integration, such a «United Bank of Switzerland» would stand quite a fair chance, because the cultural fit seems more of a given compared with any combination with a foreign bank.

So far, when individual investors demanded far-reaching changes to the corporate structure of the big banking two, the consideration rather was to split off a division. A complete merger no doubt would be met with heavy regulatory opposition: at least one of the two banks would have to split off its Swiss business to avoid being held back by the competition commission on concern of market domination.

Too-Big-To-Fail Issue

The merged bank would also strongly exacerbate the «too-big-to-fail» issue in Switzerland. Valid points for sure. But because regulatory reasons stand in the way of such a merger doesn’t mean that a merger would make little strategic sense. The strategic assessment should, however, focus more on synergies in both cost and income. The economic logic of a merger of both the investment banking and asset management units to create synergies of cost and of the private banking units to generate growth opportunities can’t be disputed.

Swiss Powerhouse

The result would be a Swiss powerhouse focusing on wealth management (which is the core competence of both companies), with a very strong presence in the biggest private banking markets and selective investment banking services. From a business point of view, this vision has quite a lot speaking in its favor, even though the implementation would present many hurdles.

One central aspect would be the capital requirement by the combined firm. The unbroken trend to higher capital requirements in investment banking means that cross-subsidization by wealth management becomes a major advantage for the funding of the business. A merger may be advantageous, but only if the two banks do their homework.

Creating a United Bank of Switzerland

The real challenge lies in the complexity of the operative and technical merger. Put simply, the bank would have to choose one of the two platforms and readdress all the production and distribution processes. A herculean task. The more integrated the business, the more sense it makes to make an acquisition of distribution (private banking), to generate more volume for the existing technology platform.

It would be simpler to do so by buying a slightly smaller Swiss rival. I doubt whether this would constitute the necessary quantum leap though. If the two big Swiss banks really strive for the big deal, creating a United Bank of Switzerland would be a giant project but in many ways more sensible than merging with a foreign bank.

Teodoro D. Cocca is a professor for asset and wealth management at Johannes Kepler University in Linz. Before joining the university in 2006, he worked in investment and private banking at Citibank for a number of years. He was a researcher at Stern School of Business in New York and a lecturer at Swiss Banking Institute in Zurich. The Swiss, who has Italian roots, is adjunct professor for private banking at Swiss Finance Institute (SFI) in Zurich. He advises financial firms and government bodies in Switzerland and abroad. Since April 2011, Cocca has been a member of the board at VP Bank in Vaduz and heads the bank’s strategy and digitization committee. A new book, «Digitization in Private Banking» (in German) is out now at Frankfurt School publishers.

How A.I. Continues to Impact Financial Services
As explained by executives from some of the world’s biggest financial institutions, and cutting edge fintech companies.