UBS Aims to Cut $10 Billion in Costs, Plans to Eliminate 3,000 Jobs Following Credit Suisse Acquisition

UBS Group’s Acquisition of Credit Suisse: A Sweeping Consolidation

In a significant development in the global banking sector, UBS Group (UBSG.S) has announced a plan to absorb its domestic rival, Credit Suisse, and embark on a cost-cutting initiative worth over $10 billion. The plan, revealed on Thursday, includes eliminating 3,000 jobs in Switzerland alone, hinting at the scale of the restructuring.

The move comes after Credit Suisse’s financial instability, marked by customers withdrawing billions from their accounts, pushed UBS to take steps towards consolidation. The decision to absorb Credit Suisse’s local arm, which was its only profitable division last year, was taken by UBS instead of considering a spin-off.

UBS’s Strategic Consolidation and Job Cuts

UBS CEO Sergio Ermotti made the announcement, indicating that the bulk of the savings will come from job cuts. Global analysts estimate that between 30,000 to 35,000 jobs could be removed worldwide.

In a memo to staff, Ermotti stated that, along with the Swiss job cuts, more employees would leave voluntarily, for instance, through retirement. Considering Credit Suisse’s recent staff reduction of 8,000 people, the overall toll could be even higher.

UBS’s cost-saving prediction of over $10 billion by 2026 is up from a previous estimate of $8 billion by 2027. The announcement of the cuts, along with the first financial results since the rushed takeover in March, saw UBS shares soar by 6%.

Controversy Over the Acquisition

The decision to absorb Credit Suisse’s local operation has sparked controversy in Switzerland. Proxy adviser Ethos, which represents Swiss pension funds and foundations that owned stakes in both banks, argued that a spin-off would have mitigated major systemic risk for Switzerland and prevented a negative employment impact.

Ethos supports a class-action lawsuit demanding a better price from UBS for the takeover. Keeping Credit Suisse intact and independent in Switzerland would have resulted in fewer job losses.

The merger, the largest bank merger since the global financial crisis, was orchestrated by the Swiss government to prevent Credit Suisse’s collapse. The newly formed group’s assets surpass the economic output of the country, challenging regulators who already struggled to control big lenders.

Financial Outlook After the Acquisition

UBS has reported net profit of $29 billion for the second quarter, including just one month of Credit Suisse earnings since the deal closed in June. The substantial profit is due to a one-off gain reflecting that the acquisition costs were much lower than Credit Suisse’s value.

Despite the large-scale restructuring and job cuts, UBS remains optimistic about its short-term outlook, expecting stronger financial markets to boost its fees. The bank also reported net new money of $16 billion in its global wealth management sector. However, the success of the merger hinges on UBS’s ability to retain Credit Suisse’s wealthy clients and effectively manage the colossal deal.

The merger of two global systemically important banks poses both opportunities and risks for UBS. The acquisition of Credit Suisse for a mere 3 billion Swiss francs requires UBS to significantly cut costs, downsize Credit Suisse’s investment bank, and maintain its wealthy clientele. Despite the challenges, UBS remains hopeful for a successful merger and a stronger financial future.

Original Story at www.reuters.com – 2023-08-31 16:33:43