Chairman of UBS Group AG Colm Kelleher said he will manage down the Credit Suisse Group AG investment bank, curtailing the source of losses in the new year in a move that potentially spells the end for plans to carve out part of the unit under the brand CS First Boston.
“Let me be very specific on this: UBS intends to downsize Credit Suisse’s investment banking business and align with our conservative risk culture,” Kelleher said at a press conference announcing the deal. “We will de-risk many of the complex businesses we inherited.”
The takeover of Credit Suisse by UBS announced on Sunday creates a significant overlap in the new combined bank, at least the unit that will take a multi-billion dollar hit from the collapse of Archegos Capital Management in 2021. The combined investment bank of UBS and Credit Suisse will not have more than 25 % of the entity’s total risk-weighted assets over time, Kelleher said.
UBS took over a portfolio of “difficult-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 was unable to do due diligence on the portfolio, although Kelleher said there was no reason Credit Suisse didn’t mark it properly. The bank is expected to assume its first losses in winding down its portfolio of up to 5 billion Swiss francs ($5.4 billion), and the government will set aside an additional 9 billion francs for potential losses.
Small deal
A central plank of Credit Suisse’s now-defunct turnaround strategy unveiled in October is the spin-off of part of the investment bank in the CS First Boston brand to be led by former dealmaker Michael Klein. Businesses in the unit were a sticking point in talks over the weekend to manage the merger.
Kelleher confirmed that UBS has its own investment banking unit, although it did not immediately complete the spin-off plan. Klein will miss out on a big payday, as he resigned from the supervisory board, and recently sold his boutique investment firm to a bank in a $210 million deal that didn’t close before taking over.
UBS plans to continue with its own strategy of a small capital-lite investment bank and therefore can use the investment bank Credit Suisse to strengthen its global banking business while managing down others.