Sergio Ermotti, CEO of UBS Group AG, Tuesday, May 7, 2024.
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After tense negotiations over the March 2023 weekend, Swiss banking giant UBS Agreed to acquire troubled rival Credit Suisse.
Despite the attractive $3.2 billion purchase price, investors remain concerned about whether UBS can manage to turn around Credit Suisse’s investment banking business – a source of age-old problems. UBS also became one of Europe’s largest banks, raising political and regulatory concerns.
Bruno Verstraete, founder of Lakefield Wealth Management, told CNBC via email that investors at the time were “very concerned” about the complexity of the deal and whether UBS could make it work.
“When a healthy person sleeps next to someone with severe flu, they can also get the flu,” he said.
The acquisition was so complex that UBS decided to change leadership and put former CEO Sergio Ermotti back in charge of the bank to oversee the merger.
Verstraete added: “Investors are acutely aware of the significant risks associated with the acquisition of unknown liabilities, given market conditions, political dynamics and the time constraints within which transactions are executed.”
Now, 18 months later, that sentiment is changing, with many considering it the best deal of a decade.
Beat Wittmann, chairman of Porta Advisors, told CNBC via email: “The merger with Credit Suisse is currently progressing according to planned milestones and timelines, and UBS Group AG, under the guidance of CEO Sergio Ermotti, It is absolutely right to pursue this plan ambitiously under the leadership of
UBS
UBS completed the merger of its parent companies in May and then completed its transition to a single U.S. intermediate holding company in June. In July, it fully merged the Swiss entities of Credit Suisse and UBS Group AG. The entire process is expected to be completed in 2026.
“The integration process is proceeding in a typically Swiss way – disciplined, pragmatic and appears to be on track. Calm and trust have been restored,” Verstraete said.
The dissipation of concerns was also evident when UBS reported second-quarter results in August, with analysts changing tack to focus on actual business performance rather than the details of the merger.
UBS‘ Announcements of faster progress on cost savings also pleased investors. The bank now expects to achieve $7 billion in cost savings by 2024, or more than half of UBS’s $13 billion target through 2026 over the course of the merger.
“We still have a lot of work to do”
But Ermotti did not stand up.
“Let me reiterate something you’ve heard me say before. We still have a lot of work to do to address Credit Suisse’s structural lack of sustainable profitability,” he said after results in August.
Ermotti added: “While we are encouraged by the significant progress being made across the group, the path to returning profitability to pre-acquisition levels will not be linear.”
One of the biggest unresolved issues is the potential for new capital requirements from Swiss authorities.
swiss finance minister Karin Keller-Sutter told the country’s Daily Mirror newspaper earlier this year that UBS was “likely” to need a further $15 billion to $25 billion in capital in response to concerns across the country that the bank had become too big. And the worry of being unable to save.
The status of these capital increases is expected to be clarified in early 2025.
So some investors still need more convincing.
“The key indicator to look at UBS’s wealth is the share price, with capital markets exhibiting a straightforward ‘show me first’ attitude,” Porta Advisors’ Wittmann said.
UBS shares rose after the deal closed in March 2023, but have since stabilized. It’s up more than 21% in the past 12 months, but is up just 1% so far this year.
While the bank’s future remains uncertain, some are celebrating the progress so far.
“This deal will probably go down in history as one of the most successful ever,” Verstraete said. He added, “Mr. Ermotti is expected to become a national hero, although whether this praise will come from Swiss citizens, Whether by employees, FINMA (Swiss Financial Market Supervisory Authority) or shareholders remains to be seen.
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