UBS Group AG, the largest Swiss bank, has reported a staggering $29 billion profit for the second quarter of 2023, thanks to its emergency acquisition of its former rival Credit Suisse. The bank also announced that it would fully integrate the domestic business of Credit Suisse by next year, phasing out its brand name.
A Historic Merger in Swiss Banking
The deal, which was brokered by the Swiss government in March 2023, was aimed at preventing a systemic crisis in the country’s financial sector after Credit Suisse suffered a series of scandals and losses that eroded its capital and reputation. UBS agreed to pay $3 billion for Credit Suisse, which had a market value of $10 billion before the takeover.
The acquisition gave UBS a dominant position in the global wealth management industry, with roughly $5 trillion in client assets under management. It also boosted its presence in the Swiss market, where Credit Suisse had a loyal customer base and a profitable retail and corporate banking operation.
The $29 billion gain that UBS recorded in the second quarter was a result of an accounting term known as negative goodwill, which reflects the difference between the price paid for an asset and its fair value. UBS now holds the record for the biggest ever quarterly profit for a bank, surpassing JPMorgan Chase & Co.’s $14.3 billion profit in the first quarter of 2021.
A Complex Integration and Restructuring Process
UBS Chief Executive Officer Sergio Ermotti, who returned to lead the bank after his successor Ralph Hamers resigned amid a legal scandal, said that the merger would reinforce UBS’s status as a premier global franchise and one that Switzerland can be proud of. He also said that the bank would target cost savings of more than $10 billion by the end of 2026.
However, the integration and restructuring process is not without challenges and risks. UBS faces the task of winding down a large part of Credit Suisse’s investment banking operations, which were plagued by losses from risky bets on Archegos Capital Management, Greensill Capital and other clients. UBS also has to deal with potential legal liabilities, regulatory scrutiny and political backlash from the deal, which has sparked protests and criticism from some lawmakers and unions.
Moreover, UBS has to retain and attract clients and employees from both banks, who may be wary of the changes and uncertainties brought by the merger. UBS said that it saw net new money inflows of $16 billion in the second quarter, while Credit Suisse outflows slowed to 39 billion Swiss francs ($44.4 billion). The bank also said that it expects client activity and asset inflows to continue in the coming quarters.
A New Era for Swiss Banking
The takeover of Credit Suisse by UBS marks a historic shift in the Swiss banking landscape, which has been dominated by the two rivals for more than a century. The deal also reflects the changing dynamics of the global banking industry, which has seen increased consolidation and competition amid low interest rates, digital disruption and regulatory pressure.
UBS said that it would operate Credit Suisse as a separate entity until the planned legal merger in 2024. The Credit Suisse brand name will remain in place until clients are moved over to UBS systems, expected in 2025. UBS said that it would honor the legacy and heritage of Credit Suisse, which was founded in 1856 and played a key role in financing Switzerland’s industrialization and economic development.
UBS also said that it would continue to invest in innovation and sustainability, as well as support its home market and society. The bank said that it would donate $1 billion to a foundation dedicated to social and environmental causes in Switzerland over the next five years.