Trouble with corporate loans: Sergio Ermotti leaves business captains in the dark

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What does UBS plan to do with its Swiss enterprise client business? This is the big question that worries top representatives of the Swiss economy. Finally, they want clarity on how the corporate client business will continue after the Credit Suisse takeover. So far, the bank has said it will only make a decision at the end of the summer. “It’s been going on for too long,” says a business representative. “We need clear signals now.”

Business representatives want UBS to make a commitment to continue providing financial services to Swiss companies as before after the merger. According to the research, several meetings were held last week between group leaders and entrepreneurs and the bank’s senior staff, with CEO Sergio Ermotti (63) and Chairman Colm Kelleher (65).

Unsecured corporate loans are a central point of discussion. This is a huge volume. Industry experts estimate the total of unsecured loans in CS alone at 30 to 40 billion francs. Almost all major Swiss companies depend on these loans. These are important in order to grow and realize new projects.

Is 1+1=2 still valid on UBS?

Company bosses do not know what will happen after the official takeover of CS by UBS, which will be completed in June. Will UBS still be able to raise sufficient funds or is it suddenly stuck in lending? As one business leader put it: “The question is whether 1+1=2 will continue to be implemented in UBS in the future.”

what does he mean by that? A fictional example of a lending business that was common before the collapse of CS: A company is dependent on a 300 million franc loan in the project business. Since no bank in Switzerland wants to take the risk alone, several banks form a loan consortium. As the so-called leading bank, UBS receives 120 million francs for its own account, CS 100 million francs, Zurich and Vaud KB 40 million francs.

What happens after the merger? Subsequently, Credit Suisse AG will become a subsidiary of UBS Group AG. The risks of UBS AG and Credit Suisse AG, still two separate banks, converge at the top of the holding company (UBS Group AG). The question that arises then is: is UBS still willing to take risks with this client even with 220 million CHF? Due to the concentration of risk, the risk committee of UBS Group AG may decide to allocate a maximum of CHF 150 million. In this case 1 + 1 gives not 2, but significantly less.

This would be disastrous for Swiss companies, especially given that cantonal banks cannot increase their credit limits so quickly and foreign banks are not a real alternative, as they are drawn into their home market in a crisis.

Too much action behind the scenes

The only certainty so far is that all existing loan obligations will be taken over in the merger. However, the fundamental question for an entrepreneur is what will happen in a few months when it comes to negotiating a new syndicated loan. “We do not have a clear, public commitment that the bank will continue to provide loans in full after closing,” says the CEO of a large company.

The president of a public company says there’s a lot going on behind the scenes. He has met with the bank president several times in recent weeks. During the talks he was assured that UBS was aware of its responsibility to the Swiss economy. The bank assured that it would go beyond its own credit limits in the short and medium term and extend loans to companies.”

Another business representative confirms that Sabine Keller-Busse, 58, head of UBS Switzerland, made exactly such concessions in confidential negotiations. CEO Sergio Ermotti assured that 1+1=2 will continue to be implemented at UBS in the future.

But why doesn’t UBS say this explicitly? The spokesperson for the bank does not want to comment on the matter, citing previous statements that the two companies were separate companies until closing.

The concerns of business leaders are not unfounded. Older times still remember the merger of banking company and bank union. An industrialist says that at that time, 1+1 was not equal to 2. But unlike today, there was a Credit Suisse that could come into play back then.

Source :Blick