UBS/Credit Suisse: Swiss bank would be a valuable asset to lose
A spin-off might appeal to some politicians but domestic arm is both profitable and a feeder for UBS’s wealth management business
Ironically, it was the bailout of UBS during the financial crisis that forced Credit Suisse to ringfence its Swiss banking business from riskier operations almost a decade ago. Now the shotgun wedding of the two former rivals threatens to create the largest, single, private financial risk Switzerland has faced.
That issue is fuelling gossip over a possible spin-off of Credit Suisse’s domestic operations.
It is hardly an outcome UBS chief executive Sergio Ermotti would vote for. The Swiss domestic bank has long been Credit Suisse’s most profitable division. It has managed to swerve the turmoil that has engulfed the investment banking and wealth management arms.
Former Credit Suisse boss Tidjane Thiam mooted the idea of selling a 30 per cent stake in the Swiss bank in 2017. Encountering fierce resistance from investors, he opted for a rights issue instead.
Shareholders could be expected to rally against any new spin-off plan. Keeping the unit is a no-brainer.
The likely elimination of client overlaps means that revenues would be lower following an integration. If revenues fell by a third from last year’s Srf4bn, the Swiss domestic bank would be worth $5bn less at $10bn. But estimated cost savings from integration would be worth an additional $11bn, once taxed and capitalised.
Recall that UBS is only paying Sfr3bn ($3.3bn) for Credit Suisse and is receiving substantial state guarantees.
Credit Suisse’s Swiss banking arm is not only a hugely valuable asset on its own, but is also a feeder for the wealth management business that is crucial to the fortunes of UBS.
Spinning off the Swiss domestic bank might appeal to some Swiss politicians. Job cuts would be fewer. Single-entity risks to financial stability would be lower.
However, the political and financial elite that pushed through UBS’s takeover of Credit Suisse has nailed its colours to the mast. It provided a waiver allowing UBS to breach antitrust concentration limits. It is unlikely to invite further controversy by rejigging the deal.