UBS Group AG Chairman Colm Kelleher said he would be in charge Credit Suisse Group AG’s investment bank, which has stemmed a source of losses in recent years in a move that could end plans to carve out parts of the unit under the CS First Boston brand .
“Let me be very specific on this: UBS intends to reduce Credit Suisse’s investment business and align it with our conservative risk culture,” Kelleher said Sunday at a press conference announcing the deal. “We will de-risk many of the difficult businesses we have inherited.”
Credit Suisse’s takeover of UBS announced Sunday creates significant overlaps with the new combined bank, not least the unit that took a multibillion-dollar hit from the implosion of Archegos Capital Management in 2021. combined investment banks of UBS and Credit Suisse will not have more than 25% of the total weight of the entity’s risky assets over time, said Kelleher.
UBS acquired a portfolio of “hard-to-assess” illiquid assets, including long-dated derivatives as well as swaps, for which the bank negotiated a loss guarantee from the Swiss government. . Because of the fast-paced nature of the deal, UBS didn’t do due diligence on the portfolio, although Kelleher said there was no reason Credit Suisse didn’t flag the right ones. The bank is expected to assume any initial losses on the portfolio shutdown of up to 5 billion Swiss francs ($5.4 billion), and the government will backstop an additional 9 billion francs in potential losses.
Small deal
A central plank of Credit Suisse’s now-defunct turnaround strategy unveiled in October is a spin-off of the investment bank’s shares under the CS First Boston brand led by former dealmaker Michael Klein. The businesses housed in the unit became a point of talks over the weekend to arrange the merger.
Kelleher emphasized that UBS has its own investment banking unit, although did not directly address the spin-off plans. Klein stands to miss out on a big payday, as he stepped down from the supervisory board, and recently sold his boutique investment firm to the bank in a $210 million deal that has yet to be completed in no take yet.
UBS plans to continue its own strategy of a small capital-lite investment bank and therefore can use the Credit Suisse investment bank to strengthen its global banking business while managing others.