Zurich, Switzerland – Frontier Post – UBS Group, the world’s largest wealth manager, has unveiled a comprehensive plan to cut over $10 billion in costs following its takeover of rival bank Credit Suisse. The Swiss banking giant announced that it will axe 3,000 jobs in Switzerland alone as it grapples with the task of integrating its stricken competitor.
A Glimpse of the Scale of Shake-Up
The decision to cut roughly one in 12 Swiss jobs provides a glimpse into the magnitude of the shake-up at the newly formed banking giant. Credit Suisse’s local arm, which was the only division that remained profitable last year, will be absorbed by UBS instead of being spun off. UBS believes that a full integration is the best outcome for both the bank and the Swiss economy.
The Road to Recovery
UBS Chief Executive Sergio Ermotti announced that 3,000 Swiss jobs will be eliminated, along with additional departures through retirement and voluntary resignations. Globally, 8,000 employees have already left Credit Suisse in the first half of this year. The bank aims to achieve over $10 billion in cost savings by the end of 2026, exceeding its previous estimate of $8 billion by 2027.
The market responded positively to the news, with UBS shares surging more than 5% in early afternoon trade. This boost comes alongside UBS’s first financial results since the takeover, which revealed a $29 billion profit. It is important to note that this substantial profit is largely attributed to a one-off deal effect.
Short-Term Optimism
Despite the challenges ahead, UBS struck an optimistic note about its short-term outlook. The bank is witnessing a pickup in sentiment among its wealthy clients and expects stronger financial markets to boost the fees it earns. This positive outlook provides hope for UBS as it navigates the complexities of integrating Credit Suisse.
Contested Decision
The decision to absorb Credit Suisse’s local operation has not been without controversy in Switzerland. Proxy adviser Ethos, representing Swiss pension funds and foundations that held stakes in both banks, argues that spinning off the Swiss bank would have been a preferable option. They believe that it would have avoided “a major systemic risk for Switzerland” and mitigated negative impacts on employment and fair competition. Ethos has even backed a class-action lawsuit seeking better terms from UBS for the takeover.
A Major Bank Merger
The merger between UBS and Credit Suisse, orchestrated by the Swiss state to prevent the collapse of Credit Suisse, created a banking group with assets surpassing the economic output of the country. Regulators in Switzerland have faced challenges in controlling large banks, and this merger has added to their burden. Although Switzerland provided financial support for the rescue, UBS has since dropped state assistance, leaving politicians with limited leverage to influence the job cuts ahead of national elections.
Impact on Switzerland’s Financial Center
The job cuts will undoubtedly have a significant impact on Zurich, Switzerland’s financial center, where both banks dominate the landscape. The Swiss Bank Employees Association has called for fair treatment of the 37,000 local staff affected by the restructuring.
More to Come
The Swiss job cuts offer a glimpse into what lies ahead for the global bank, which has a presence on Wall Street and in London. Analysts estimate that between 30,000 and 35,000 jobs could be eliminated globally as part of UBS’s cost-cutting efforts. Although analysts generally welcomed the announcement, they cautioned that integrating the two banks will be a long and challenging process.
Persuading Wealthy Clients to Stay
UBS faces the challenge of persuading Credit Suisse’s wealthy customers to remain with the bank. Keeping these clients is crucial for UBS to successfully execute this ambitious deal. Credit Suisse reported net asset outflows of 39 billion Swiss francs ($44.4 billion) in the second quarter, highlighting the ongoing loss of confidence. However, UBS remains hopeful as it reported that outflows had slowed down and reversed in June. Additionally, UBS’s global wealth management division reported net new money of $16 billion.
Opportunities and Risks
The shotgun marriage between UBS and its fallen rival presents both opportunities and risks for the bank. UBS acquired Credit Suisse for a mere 3 billion Swiss francs, significantly below its value. However, successfully integrating Credit Suisse requires UBS to reduce costs, shrink Credit Suisse’s investment bank, and retain its wealthy clientele.
Conclusion
UBS’s sweeping cost-cutting plan and job cuts following its takeover of Credit Suisse mark a significant milestone for both banks and Switzerland’s banking industry as a whole. While challenges lie ahead during this integration process, UBS remains cautiously optimistic about its short-term outlook. Furthermore, its announcement of $29 billion in profit highlights the potential benefits of this merger. As UBS moves forward with its plans, only time will tell if this ambitious undertaking will prove successful.