What does the world's largest bank gain by buying Credit Suisse?

Taking over Credit Suisse earned UBS nearly $35 billion, owned assets twice the size of Switzerland's GDP, and eliminated competitors in the stock trading sector.

On June 12, UBS announced the completion of its takeover of rival Credit Suisse. This is the largest merger in the world banking industry since the 2008 financial crisis. The deal also created a Swiss banking giant with assets of 1.7 trillion USD and 120,000 employees worldwide.

After the merger, UBS Group will operate as two separate companies, UBS and Credit Suisse. The integration of the two banks is expected to take three to four years. During this time, both banks will continue to have their own branches, working with their own clients and partners.

The Swiss financial regulator (FINMA) commented that the completion of the takeover "brought transparency and stability to both banks". This is a project of national importance for Switzerland, because the economy is heavily dependent on the financial sector.

UBS agreed in March to take over Credit Suisse for more than $3 billion, through an emergency arrangement by the Swiss government . Credit Suisse was then in a crisis of confidence and was suffering from massive withdrawals from clients. Swiss authorities feared that Credit Suisse – one of the 30 most important banks in the world – would collapse, triggering a global financial crisis.

"This is the beginning of a new chapter, both for UBS and the global financial industry," UBS CEO Sergio Ermotti and UBS Chairman Colm Kelleher said in a letter to reporters on June 12.

UBS and Credit Suisse logos on buildings in Geneva. Photo: Reuters — UBS and Credit Suisse logos on buildings in Geneva. Photo: *Reuters*

The takeover of Credit Suisse will come at a cost to UBS. Last month, UBS estimated it would lose $17 billion from the deal, including $13 billion in write-downs of Credit Suisse's assets and $4 billion in legal and administrative costs.

However, analysts say the benefits UBS receives are not small. Thanks to the acquisition of Credit Suisse, the size of UBS's asset management division increased to 5,000 billion USD overnight. They will also become the world's leading name in the field of asset management for the rich. This is the field UBS focused on developing after the 2008 financial crisis.

They are already the leading bank in this segment in China. Therefore, UBS's role in the rest of Asia will be further strengthened by the merger with Credit Suisse.

In Switzerland alone, the combined assets of these two banks are now twice the country’s GDP. Deposits are also equivalent to 45% of GDP. This is a huge number, even for a country with solid public finances and low debt like Switzerland.

UBS will also receive Credit Suisse’s profitable domestic business, which analysts say is worth three times the price UBS paid for the entire Credit Suisse deal.

UBS will also eliminate a rival in the securities trading business. Last year, UBS earned $7.1 billion from buying and selling bonds, stocks and currencies. The business brought in $3.2 billion for Credit Suisse.

UBS also expects to make a profit of up to $34.8 billion from buying Credit Suisse at a price well below book value. This financial buffer will help them offset potential losses and boost profits in the second quarter.

UBS also acknowledged that it could save billions of dollars from combining the two banks’ costs, mainly through staff cuts. The merger could cost tens of thousands of jobs, including in New York and London, where UBS plans to retain only part of Credit Suisse’s investment banking business.

The bank also received significant support from the authorities. Last week, the Swiss government agreed to absorb the 9 billion franc ($10 billion) loss arising from the rescue of Credit Suisse. This was the final major hurdle to completing the merger, helping UBS maintain market confidence during the transition. UBS will also have access to a large loan line from the Swiss National Bank.

UBS executives still have a lot of work to do on this complex deal, especially deciding which businesses and personnel to keep, replace or eliminate. Still, they remain optimistic.

In April, Ermotti told CNBC that the Credit Suisse deal was not risky and would generate long-term benefits. Kelleher also said at the UBS AGM in April: "Although we did not initiate the deal, we believe it is financially attractive for UBS shareholders. I believe we made the right decision."

Ha Thu (according to Bloomberg, Reuters)

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