UBS chief executive Sergio Ermotti said the bank hopes to move swiftly in deciding what parts of Credit Suisse’s investment bank it will keep as soon as the takeover of its rival is concluded.
Certain regulatory clearances, notably from European Union antitrust authorities, are still awaited but Ermotti, who was reappointed after UBS agreed on March 19 to acquire Credit Suisse as part of a state-backed rescue, said the SFr3bn (US$3.4bn) deal should complete by the end of June.
Until that point UBS will not have access to Credit Suisse’s books and decisions would have to wait, said Ermotti. “We want to clarify it as quickly as possible,” he told analysts. “In the next few months we will get more clarity. We want to fully understand the exposures.
“We want to make decisions based on facts not emotions. Right now everything is based on emotions so [it's] hard to jump to conclusions but it [the investment bank] will have to be sustainable and viable over the long term.”
He reiterated that the broad plan was to ensure investment banking activities used only a quarter of the combined group’s risk-weighted assets. That will mean a significant proportion of Credit Suisse assets will be treated as non-core.
“We will come up very quickly with what is core investment banking activity,” he told journalists after reporting first-quarter results. “We are not going to go back and forth.”
One area of focus will be Credit Suisse’s leveraged finance business, which has long been a market-leading franchise. “There will be many areas where Credit Suisse will bring good coverage and enhance the investment bank. We will have a more diversified business,” said Ermotti.
A lot of the legwork will take time however, he said, as UBS “onboards” clients from Credit Suisse. “We will look at their suitability and make sure they fit our standards. We may have different views on client segments.
“The DNA [of the investment bank] won’t change by adding a diverse portfolio of business, including leveraged finance. We will be focused on that business but be mindful we will not want an investment bank driven by volatility and risk.
“You can count on us being a relevant player but not to focus on being on top of league tables and making it a central part of our model.”
The combined entity will initially be very adequately capitalised, in part because Credit Suisse’s SFr15bn of Additional Tier 1 notes have been wiped out, giving leeway for UBS to decide to write down assets it inherits.
Ermotti said it is still “very important not to treat assets as distressed but non-core” and economic conditions must be in place to determine a writedown but said every time the group could reduce risk and free up capital “we will do that”.
On a pro forma basis the combined investment bank would account for 29.3% of risk-weighted assets, or US$176.5bn out of US$603bn. That suggests the bank will not be under huge pressure to reduce its book.
Ermotti stressed the good position of UBS at present too. “When I left in 2020 we were in a position to consider all options, including transformational acquisitions. So we were in a good position to be able to be part of the solution for Credit Suisse and a source of stability for Switzerland and globally.”
During the first quarter UBS’s investment bank performed in line with peers with overall revenues down 19% to US$2.35bn. Primary markets and advisory remained subdued, with combined revenues falling 30% to US$383m.
On the markets side weakness in equities, with revenues down 23% to US$1.31bn, was offset somewhat by a stronger performance in electronic FX trading and prime brokerage. The FX, rates and credit trading business saw revenues rise 1% to US$658m.