Mar 29, 2023
UBS’s Kelleher Says Credit Suisse Integration Bigger Than 2008 Crisis Deals
(Bloomberg) -- UBS Group AG Chairman Colm Kelleher said that the task of integrating Credit Suisse Group AG is bigger than any deal that was executed during the height of the financial crisis in 2008, underlining the magnitude of the task facing Sergio Ermotti.
Kelleher, tapping Ermotti to lead the bank through the acquisition as Ralph Hamers steps down, said he couldn’t stress enough the enormity of the work ahead for UBS to take over its biggest rival.
“This is the biggest single financial transaction since 2008. I would argue it’s bigger than any deal that was done in 2008” as it’s the first time two systemically relevant banks merge, Kelleher said at a press conference on Wednesday. “That brings with it significant execution risk.”
Ermotti will be charged with winding down large parts of Credit Suisse’s investment bank as well as figuring out which of the firm’s executives, wealth managers and investment bankers it wants to keep. Having previously been a decade in charge, he has deep knowledge of the bank as well as experience in crisis management and restructuring.
Ermotti steered UBS through the aftermath of a rogue trader crisis in 2011 when London-based Kweku Adoboli cost the bank billions of dollars through unauthorized positions, working to improve the bank’s risk and governance. He also took an axe to the fixed-income trading business, shrinking the investment bank and increasing the bank’s focus on wealth management. That’s a strategy that was later copied by competitors.
His tenure, from 2011 to 2020, wasn’t without missteps. It included a huge fine for a tax-evasion case in France and the departure of top executives such as Andrea Orcel, now CEO of Italy’s UniCredit SpA. Toward the end of his time in charge, he hired Iqbal Khan, head of UBS wealth management, from Credit Suisse.
The deal between the two Zurich rivals is the largest such combination of systemically important banks since the sub-prime lending scandal triggered the financial crisis almost fifteen years ago. At that time, large US lenders such as JPMorgan Chase & Co. had to step in to rescue stricken lenders such as Bear Stearns. To be fair, Credit Suisse is only about two-thirds the size of Merrill Lynch & Co. when Bank of America Corp. agreed to take it over in 2008.
Kelleher is a former Morgan Stanley executive who formally retired from the firm in mid-2019. He also has first hand experience of crisis management, having served as chief financial officer during the 2008 crisis.
He joined the New York-based company in fixed-income sales in 1989, before taking on responsibility for Morgan Stanley’s investment bank and trading operation. After taking on the retail brokerage in 2016, he had responsibility for the firm’s two biggest businesses.
Kelleher said on Wednesday that the Credit Suisse deal faces significant execution risks and that UBS doesn’t want to import “bad culture” from Credit Suisse, which was primarily at the investment bank and in the control functions. The bank is interested in keeping talented investment bankers, he said.
The bank had its credit outlook lowered by S&P Global Ratings and Moody’s Investors Service in the days immediately after the emergency rescue was announced. The ratings firm highlighted the integration and restructuring challenges it faces with the takeover.
“We see material execution risk in UBS’s integration of Credit Suisse,” S&P analysts including Benjamin Heinrich and Anna Lozmann wrote. They cited “the size and weaker credit profile” of Credit Suisse “and particularly the complexity in winding down a large part” of its investment banking operations.
(Adds trader scandal, ratings downgrades)
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