Bank interrupted: “time of pain” begins in CS

But time is of the essence: The upcoming integration will progress at different speeds depending on the business area. Khan has a particularly difficult task here, as rapid cost reductions are unlikely in his empire. Overall, integration is not only cumbersome but also expensive: Venditti estimates, for example, restructuring costs for the upcoming downsizing to be between eight and ten billion francs.

CS investment banking is discontinued first. Bank management let it be known that they didn’t want to keep almost any of them. The only exception is probably the consulting business where there are mergers and acquisitions. CS’ capital-weighted bond business, on the other hand, is facing a sharp cut.

In the Swiss business, the conversion job will probably take some time. As Ermotti doesn’t want to reveal what it plans to do with CS Switzerland by the end of the summer: full integration? Or is it a CS body independent of any type? This part of integration is also the most politically sensitive.

Khan is responsible for half of the revenue

Given the excitement about CS Switzerland, the integration of its core business, wealth management, is less of a focus. This will likely be decisive for the success of the takeover.

The acquisition allows UBS to strengthen its position in Asia Pacific, Latin America and the Middle East. Proforma has $3.4 trillion in assets under management of the division and generates approximately $25 billion in revenue. Khan’s empire thus provides almost half of the revenue of the new UBS.

However, Credit Suisse’s asset management is running a deficit. In the first quarter alone, it lost CHF 1.5 billion, of which CHF 1.3 billion can be attributed to a goodwill write-off. But even without that factor, the department is currently not making any money. “The main problem with CS asset management is that while costs are stable, revenue has already collapsed,” says Venditti.

Platform migration takes years

Khan’s problem: Unlike investment banking, where entire departments can be shut down and people fired, his business has no quick fixes to cut costs. First of all, the departure of good advisors who threaten to pursue further outflows of client funds should be stopped.

Banks primarily have two cost pools: personnel and IT. However, the IT platforms of CS wealth management can only be transferred to those of UBS on a country-by-country basis. “However, just like the merger of legal entities, transitions will take years,” warns Venditti. The Julius Baer example illustrates this: In 2012, the private bank announced that it had acquired Merrill Lynch’s international wealth management business outside of the United States. It took three years for platforms and national companies to transition. CS Wealth Management’s integration is much larger and more complex.

This man needs to change course

To revive the episode, Khan brought back and promoted one of his loyalists: Yves-Alain Sommerhalder. Both have known each other since Khan ran CS Wealth Management. Back then, Sommerhalder represented the interface of the investment bank, enabling super-rich CS clients to buy the products they wanted. Sommerhalder had landed in October 2022 before the CS crash. Khan brought him to UBS in April and is now returning him to Credit Suisse as the new head of wealth management.

Working at CS for over two decades, Sommerhalder also forms the division’s integration team with Wiwi Gutmannsbauer, a UBS veteran who has worked at the bank for over two decades and is the Chief Operating Officer of UBS Wealth Management. Since January. The division of labor is clear: Sommerhalder is a man of business, products and customers. Gutmannsbauer takes care of the engine room. It is said that the two managers get on well with each other.

Customer Rescue Operation continues

According to insider information, Sommerhalder is counting on the revival of its CS core business rather than rapid cost reductions. The motto is to retain customers, reclaim assets and thus obscure the division again. The new mom UBS is helping her with this: because thanks to her, the CS division now has much lower financing costs. This means that the bank is once again competing with super-rich customers in the lending business. Thanks to the takeover, the breakeven point has been lowered.

But to date, the wealth management culture at CS has been more risk-averse than at UBS: For example, CS has given loans to super-rich clients and accepted their expensive yachts as collateral. UBS took action earlier in the week. The Financial Times revealed that CS bankers must seek approval from UBS bosses if they want to increase such existing loans to more than $60 million. They are also prohibited from making risky transactions such as getting new customers from countries such as Russia, Sudan or Venezuela.

Khan’s dishonorable legacy

Insiders are declining: Factors such as the sharp fall in financing costs are always more important than restrictions in the surrounding areas, such as yacht loans, which should continue to be available. It is said that many CS employees, at least in the last chapter, were highly inspired by the idea of ​​integrating with good numbers and thereby saving their bank’s dignity.

Other voices from the bank point to a certain Iqbal Khan driving growth, for example in CS, with the expansion of loan businesses with the super-rich. “Sommerhalder can now somehow clean up what Khan left behind in CS,” says one CS executive.