UBS Group said on Thursday it would fully absorb Credit Suisse’s domestic bank, adding that it was increasing its ambitions for cost savings to more than $10 billion across the group.
The long-awaited announcement about Credit Suisse’s home bank was made in tandem with UBS’s first earnings report since taking over its stricken rival. The decision comes despite a likely backlash in Switzerland where it could result in the loss of thousands of jobs.
UBS could have spun off the business and floated it in an IPO but the domestic bank has been a solid profit-maker for Credit Suisse and last year it was the only division in the black.
“Our analysis clearly shows that a full integration is the best outcome for UBS, our stakeholders and the Swiss economy,” Chief Executive Sergio Ermotti said in a statement.
“The two Swiss entities will operate separately until their planned legal integration for 2024 with the gradual migration of clients onto UBS systems expected to be completed in 2025,” he added.
The prediction of over $10 billion in cost-savings by end 2026 compares with an earlier estimate of $8 billion by 2027. Most savings are set to come from reducing headcount.
Hanging on to existing Credit Suisse clients is seen as key if UBS is to successfully pull off the Herculean deal.
Credit Suisse reported net asset outflows of 39 billion Swiss francs ($44.4 billion) in the second quarter, underscoring that the rescue has failed to stem the loss of confidence in its franchise.
But UBS said the outflows took place at a slower pace compared to previous quarters and turned positive in June.
UBS’s global wealth management reported net new money of $16 billion, its highest for the second quarter in over a decade.
The shotgun marriage to its fallen rival at the behest of Swiss authorities – the first-ever merger of two global systemically important banks – has created both opportunities and risks for UBS.
On one hand, analysts note that UBS acquired Credit Suisse for a song – just 3 billion Swiss francs – while gaining a large asset base, good client relationships and talented employees.
Indeed, UBS shares have gained some 30% since the takeover was announced and are hovering around their highest levels in 15 years.
At the same time, analysts warn that the complexity and the hasty nature of the deal brings significant execution risks as UBS must aggressively cut jobs, shrink Credit Suisse’s investment banking operations and manage outflows as clients seek to spread risk.
UBS booked net profit of $29 billion for the second quarter. Groupwide UBS results include just one month of Credit Suisse earnings as the deal only closed in June.
The bumper profit is due to a huge one-off gain that reflects how the acquisition costs were far below Credit Suisse’s value. It was somewhat under a consensus estimate of $33.45 billion from a poll conducted by the bank.