- UBS takes over Credit Suisse’s Swiss business
- Job cuts announced in Switzerland
- CEO Ermotti announces savings of over $10 billion
- The results illustrate the magnitude of the task ahead
- UBS earns $29 billion in profit due to one-time deal effect
ZURICH, Aug 31 (Portal) – UBS (UBSG.S) launched a more than $10 billion cost-cutting plan on Thursday, saying it would cut 3,000 jobs in Switzerland alone after taking over its struggling rival Credit Suisse will dismantle.
The plan to cut about one in 12 Swiss jobs at the newly formed banking giant provides a glimpse of the scale of the restructuring as UBS grapples with a rival consolidation that failed after panicked customers withdrew billions from their accounts.
Most of the savings are expected to come from workforce cuts, and analysts estimate that between 30,000 and 35,000 jobs could be lost worldwide.
The first job cuts follow the world’s largest asset manager’s decision to take over the local arm of Credit Suisse, which was its only profitable unit last year, rather than spinning it off, something UBS was also considering.
“Our analysis clearly shows that full integration is the best outcome for UBS … and the Swiss economy,” said UBS CEO Sergio Ermotti.
In a memo to staff, Ermotti said 3,000 Swiss jobs would be lost, while more people would leave of their own volition, such as through retirement. The toll could be far higher, as Credit Suisse has already said 8,000 people had left their jobs at the bank in the last few months before Thursday’s cuts.
UBS’s forecast of more than $10 billion in cost savings by the end of 2026 compares with a previous estimate of $8 billion by 2027.
UBS shares rose 6% in late afternoon trading, hitting their highest level since 2008, after the cuts were announced alongside the bank’s first financial results since a hastily arranged takeover over a weekend in March.
With a market value of 77 billion francs, UBS also expressed optimism about its short-term prospects. The company is seeing improving sentiment among high-net-worth clients and expects stronger financial markets will also increase the fees the company earns.
However, the decision to take over Credit Suisse’s local business is controversial in Switzerland. Proxy consultant Ethos, which represents Swiss pension funds and foundations that own shares in both banks, said a spinoff would have avoided “a major systemic risk for Switzerland, significant negative impacts on employment and problems for fair competition.”
Ethos has supported a class action lawsuit in which UBS is demanding a better price for the takeover.
If Credit Suisse in Switzerland had been intact and independent, as some politicians had hoped, fewer jobs would have been affected.
The biggest banking merger since the global financial crisis, orchestrated by the Swiss government to avert the collapse of Credit Suisse, created a group whose assets dwarf the economic output of the country whose regulators were already struggling to control large lenders .
Although Switzerland financed the rescue through guarantees and central bank funding, UBS has since withdrawn government support, leaving its politicians with little leverage to avert the killing before national elections.
[1/2]Logos of Swiss banks Credit Suisse and UBS are seen before a press conference in Zurich, Switzerland, August 30, 2023. Portal/Denis Balibouse/File Photo Acquire License Rights
The cuts will be painful for the Swiss financial center of Zurich, where banks dominate the picture. The Swiss Bank Employees Association demanded that the 37,000 local employees of the two banks should be treated fairly and equally.
“PROBABLY bumpy”
The job cuts in Switzerland provide a glimpse of the future of the global bank, whose reach stretches from Wall Street to London.
Analysts welcomed the announcement, but several expressed caution. Jefferies described the integration of the two as “lengthy, challenging and likely bumpy.” “The group remains a construction site,” said Deutsche Bank analysts.
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The results also showed how difficult it was for UBS to persuade Credit Suisse’s wealthy clients to stay.
Their retention is seen as crucial if UBS is to successfully complete the Hercules deal.
Credit Suisse reported net asset outflows of 39 billion Swiss francs ($44.4 billion) in the second quarter, underscoring that the rescue failed to halt the loss of confidence.
However, UBS said outflows eased and reversed in June. UBS global asset management reported net new assets of $16 billion.
The first-ever merger of two globally systemically important banks presents both opportunities and risks for UBS.
Analysts point out that UBS acquired Credit Suisse for a small amount – just 3 billion Swiss francs – but to make it work, UBS needs to cut costs, shrink Credit Suisse’s investment bank and keep its wealthy clients on board.
UBS posted a net profit of $29 billion in the second quarter, although the group-wide results only include one month of Credit Suisse’s gains because the deal only closed in June.
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The record profit comes from a huge one-time gain that reflects that the acquisition costs were well below Credit Suisse’s value. That was slightly less than the consensus estimate of $33.45 billion from a survey by the bank.
($1 = 0.8784 Swiss francs)
Additional reporting by Brenna Hughes Neghaiwi in Zurich; writing by John O’Donnell and Noele Illien; Edited by Edwina Gibbs, Tomasz Janowski and Alexander Smith
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