UBS Group AG Chairman Colm Kelleher said he will manage down Credit Suisse Group AG’s investment bank, curtailing a source of losses in recent years in a move that potentially spells the end for plans to carve out parts of the unit under the CS First Boston brand.
“Let me be very specific on this: UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” Kelleher said Sunday at a press conference announcing the deal. “We will be de-risking a lot of the tricky businesses that we are inheriting.”
The takeover of Credit Suisse by UBS announced Sunday creates significant overlaps in the new combined bank, not least the unit that suffered a multi-billion-dollar hit from the blow-up of Archegos Capital Management in 2021. The combined investment banks of UBS and Credit Suisse won’t have more than 25% of the total entity’s risk-weighted assets over time, Kelleher said.
UBS is taking over a portfolio of “difficult-to-assess” illiquid assets, including long-dated derivatives as well as swaps, for which the bank negotiated a loss guarantee from the Swiss government. Given the fast nature of the deal, UBS was not able to do proper due diligence on the portfolio, though Kelleher said that there is no reason that Credit Suisse has not marked those correctly. The bank is expected to assume any first losses on winding down the portfolio of up to 5 billion Swiss francs ($5.4 billion), and government would backstop an additional 9 billion francs in potential losses.
Klein deal
A central plank of Credit Suisse’s now-defunct strategy turnaround unveiled in October was a spin-off of parts of the investment bank under the CS First Boston brand to be led by former dealmaker Michael Klein. The businesses housed in the unit became a sticking point in talks over the weekend to arrange the merger.
Kelleher emphasized that UBS has its own investment banking unit, though didn’t address the spin-off plans directly. Klein stands to miss out on a large payday, as he had stepped down from the supervisory board, and recently sold his boutique investment firm to the bank in a $210 million deal which had not yet completed before the takeover.
UBS plans to continue with its own strategy of a smaller capital-lite investment bank and therefore be able to use the Credit Suisse investment bank to reinforce their global banking business while managing down the rest.