When integrating CS: UBS boss Ermotti needs to master these nine challenging points

The biggest obstacles for Ermotti & Co. in the upcoming full integration are:

Credit Suisse has lost approximately CHF 200 billion in client funds since the end of 2022. In June, the bank again recorded the first entries. But insiders are assuming new exits are imminent as UBS has fully integrated Credit Suisse Switzerland. Customers with ties to both banks will exchange funds to spread their risk. UBS is also likely to be affected by this effect.

In addition, many consultants left the bank. The day Ermotti presented his plans, private bank Rothschild reported that it had kidnapped five CS bankers in Zurich for Eastern European business. If an advisor changes, he usually manages to take 15 to 30 percent of client funds with him. “In the case of Credit Suisse, the rate will be much higher,” says a former CS banker who hired the competitor. “I think an advisor can transfer up to 50 percent of client funds.” Whether and to what extent this effect will materialize remains to be seen in the coming months. When asked about this, UBS boss Ermotti was relieved at his half-year press conference: He expects the new UBS to also report new money inflows in the third quarter. “It’s extremely difficult to predict more inflows and outflows,” says Andreas Venditti, Vontobel’s banking analyst.

Decreased customer assets means reduced returns. “The old CS will continue to be in the red because earnings are falling faster than costs,” says Venditti. CS AG lost about 2 billion francs in the second quarter without special effects. The deficit in the third quarter should be similarly high. Therefore, UBS predicts that the entire group will only go head-to-head in the third quarter.

In the rush of news about the full integration of CS, UBS’s quarterly figures have largely been lost. And these are not good. All divisions except Sabine Keller-Busse’s business in Switzerland reported lower profits. UBS is weak but CS’ predictable losses will have a greater impact on the group as a whole. Profit of asset management, its core business, fell 4 percent in the second quarter and 6 percent in the first half of the year. But in the much smaller Julius Baer, ​​profit before tax rose by double digits over the same period. UBS has a special feature in asset management: its large US business, which accounts for about 50 percent of the division. US clients are currently withdrawing their deposits to invest more profitably in money market funds. This effect is likely to continue. In other words, divisional boss Iqbal Khan faces two challenges: He needs to reshape his stagnant US business. It also has to protect Credit Suisse’s asset management from explosion.

According to insider information, the first layoffs for Swiss CS employees will likely begin to arrive on September 5. In Switzerland, bank boss Ermotti talks about only 3,000 job cuts necessary for full integration. But the actual reduction in staff is much larger because the 3,000 layoffs do not include voluntary layoffs and early retirement. CS’s insiders estimate that actual layoffs in Switzerland will result in around 8,000 layoffs. Overall, the bank aims to reduce costs by over $10 billion by the end of 2026. The bank does not disclose exactly how much of this was due to staff cuts; It should be around 70 to 80 percent. From here, a reduction in the workforce of up to 30,000 people can be estimated. Downsizing always means unrest, and the new UBS is threatened by adverse selection: good people go out and look for a new job. The wicked, on the other hand, hope that this does not happen to them and cling to their work.

One of the factors in the decline of CS was a culture of greed and irresponsibility. This culture was particularly evident after First Boston and Donaldson entered US investment banking with the acquisition of Lufkin & Jenrette. A similar situation occurred at Deutsche Bank, after the takeover of the gambling house Bankers Trust. When the banking company and the banking union merged, it was the smaller bank union that put the cultural stamp on the new big bank. UBS President Colm Kelleher promised that this shouldn’t happen at CS. Before a CS banker can continue to work at UBS, he must pass a “cultural filter”. Many were offended by this victory pose. Bringing thousands of CS employees together with their new employer remains a challenging practice, especially as CS employees are said to have a strong sense of togetherness.

Technical integration alone is a Hercules challenge. Credit Suisse has more than 1,000 different legal entities, while UBS only has around 300. Credit Suisse AG is scheduled to merge with UBS AG in 2024. The customer transition should be completed within 2025. In the first phase after the merger of legal entities, UBS plans to operate both client platforms. Because the IT platform can be closed only when a single customer is not booked. If UBS achieves all this in 15 months as it aims, a world record will probably be broken. In many places, legacy systems continue to work for years because it is less complex than laborious integration. But it all costs money: Before the takeover, Credit Suisse alone had 13 data centers with around 100,000 servers. The annual budget was around 3 billion Swiss Francs.

Following the acquisition of Credit Suisse, UBS still has a massive trading unit: $224 billion in assets. More than half of these are assets of the Credit Suisse investment bank, of which two-thirds are liquidated. UBS aims to reduce this remaining ramp by 50 percent by the end of 2026. How expensive the deal will be depends largely on developments in the financial markets. After all, thanks to solid capitalization, UBS has time to execute the transaction and has to complete it under time pressure.

Contest guardians were dismissed at the elephant wedding at the bank. In the case of a takeover of banks, creditor protection may be valued more than competition concerns. Therefore, the Financial Market Authority (Finma) leads the cartel problem, not Weko. UBS boss Sergio Ermotti also told the media that one of the conditions for the CS takeover is the absence of competition law restrictions in Switzerland. Weko is still reviewing the acquisition and is currently conducting surveys. He will give Finma his advice at the end of September. It would be surprising if ComCo didn’t suggest any terms; but Finma does not have to undertake them. But if Weko’s recommendations become public, UBS could face political pressure domestically.

Although Ermotti does not want to say this yet, the Credit Suisse brand will disappear completely; probably also in Germany. Because a brand without its own products and distinctive features has no meaning. It will be exciting to see when Credit Suisse’s numerous sponsorship commitments (in football, for example) will shift from the CS logo to the UBS key.

A big question remains as to what CS-Mobilbank CSX will be. Nothing compares to what UBS has to offer here. Instead of his own mobile bank, Swiss boss Sabine Keller-Busse has launched the Key4 digital product line, which she clearly doesn’t want to be understood as a CSX counterpart – leading many to understand Key4, including the authors of “Handelzeitung”. I don’t understand. Who knows: perhaps only the young online brand of the once proud CS will survive in terms of branding.