UBS Reveals Shocking Credit Suisse Takeover

 UBS Reveals Shocking Credit Suisse Takeover

UBS Reveals Shocking Credit Suisse Takeover(Image-Getty)

On August 31, UBS (UBSG.S) is set to unveil its initial earnings report following an impromptu acquisition of its Swiss counterpart, Credit Suisse. This report will shed light on the consequences of the takeover and the internal mechanisms of the newly established banking behemoth.

Beyond the second-quarter data, which was postponed due to the intricacies of the acquisition, investors will meticulously analyze any supplementary insights to glean indications of how this momentous banking rescue, the largest since the global financial crisis, is unfolding.

Key Points of Interest for Investors and Analysts:

1. Extent of Damage at Credit Suisse:

 UBS's financial results will offer a dedicated section outlining Credit Suisse's challenges, providing a more comprehensive overview of the problems now assumed by UBS. This information will outline the damage incurred by Credit Suisse's reputation with customers, especially its troubled wealth management division, in the aftermath of the rescue orchestrated by Swiss authorities in a single weekend in March. Credit Suisse had already signaled an anticipated substantial loss for 2023. The report will also indicate if the trend of clients withdrawing their funds (outflows) persisted from April to June, even after the bailout, further reducing the subsidiary's managed assets from its March value of 500 billion francs.

2. Client Movement from UBS:

Affluent clients often maintained accounts with both UBS and Credit Suisse to diversify their risk. However, the merger could lead some to move a portion of their assets elsewhere. In the past, UBS had experienced significant inflows as it benefited from Credit Suisse clients seeking safer options. This dynamic might reverse with the merger's completion. Analysts from Deutsche Bank, such as Benjamin Goy, predict potential outflows of up to 100 billion Swiss francs over time. The forthcoming results will reveal whether this shift is already underway.

3. Future of the Swiss Bank:

Market observers eagerly await UBS's decisions regarding Credit Suisse's prized Swiss division. UBS's CEO, Sergio Ermotti, has committed to announcing a resolution by the end of summer. Speculated options include spinning off, floating, or fully integrating the Swiss arm. While Ermotti leans toward integration, this option faces resistance in Switzerland. Political figures campaigning for national elections have expressed concerns that integration could result in massive job losses. UBS, however, has alleviated some of this pressure by indicating it wouldn't employ the government's financial guarantees granted for the acquisition, thus avoiding a burden on taxpayers.

4. Workforce Reduction:

When the acquisition was disclosed in March, UBS projected cost savings exceeding $8 billion, with 75% derived from workforce reductions, given the merger inflated staff numbers to 120,000. Analysts predict that UBS might eliminate about one-third of the merged group's global employees, equating to 30,000-35,000 positions. A full integration of Credit Suisse's domestic segment could affect up to 10,000 jobs in Switzerland alone. The upcoming results should illustrate how much Credit Suisse's headcount, which stood at 48,000 in March, has already dwindled. Although many departures have been voluntary, the banking community anticipates further waves of layoffs.

5. Anticipated Profit:

Analysts estimate UBS's net profit for the second quarter to reach $33.45 billion, based on a Swiss bank poll. This substantial figure largely results from UBS's acquisition of Credit Suisse at a fraction of its value, which provides a one-time boost to the balance sheet. However, analysts consider this an anomaly caused by the intricate merger, and their focus will gravitate towards other aspects, such as the restructuring program's magnitude, speed, and scale.

6. Non-Core Unit Details:

UBS is anticipated to divulge additional specifics about a collection of undesired Credit Suisse assets, referred to as the non-core unit. This compilation encompasses loans, legacy assets, and structured products. Insights are scarce regarding this unit, and analysts aspire to acquire details about its size, the projected timeline for winding it down, and associated costs.