UBS Group (NYSE:UBS) said on Thursday it will fully absorb Credit Suisse’s domestic bank – a decision that comes despite a likely backlash in Switzerland, where it could result in the loss of thousands of jobs.
Shares in UBS Group AG were up about 6 percent in Swiss morning trade, as well as 5 percent in pre-market activity on the NYSE, after the big bank on Thursday reported significantly higher profit in its second quarter, primarily reflecting a $29 billion negative goodwill on the Credit Suisse Group acquisition, as well as higher revenues.
The long-awaited announcement came in conjunction with UBS’s first earnings report since taking over its struggling rival.
UBS could have spun off the business and floated it in an IPO, but the national bank has been a solid profit generator for Credit Suisse and last year was the only division in the black.
“Our analysis clearly shows that full integration is the best outcome for UBS, our stakeholders and the Swiss economy,” Chief Executive Sergio Ermotti said in a statement.
“The two Swiss entities will operate separately until their planned legal integration in 2024, with the gradual migration of customers to UBS systems expected to be completed in 2025,” he added.
UBS has revised upward the amount of cost savings it expects from the deal, forecasting $10 billion by the end of 2026, compared with a previous estimate of $8 billion by 2027. reduction in the number of employees.
The forced marriage to its fallen rival at the behest of Swiss authorities – the first merger of two systemically important global banks – created both opportunities and risks for UBS.
On the one hand, analysts note that UBS acquired Credit Suisse for a pittance – just 3 billion Swiss francs – while gaining a large asset base, good customer relations and talented employees.
In fact, UBS shares have gained about 30% since the takeover was announced and are around 15-year highs.
At the same time, analysts warn that the complexity and hasty nature of the deal brings significant execution risks as UBS has to aggressively cut jobs, scale back Credit Suisse’s investment banking operations and manage exits as that clients seek to spread the risk.
UBS reported net income of $29 billion in the second quarter.
The abundant profit is due to a huge one-time gain that reflects how acquisition costs fell far below the value of Credit Suisse. It was just short of the consensus estimate of $33.45 billion from a survey conducted by the bank.
UBS to cut 3,000 employees in Switzerland after buying rival Credit Suisse
UBS Group AG (NYSE:UBS) plans to cut about 3,000 jobs in its home market as it seeks to cut billions of dollars in costs following its purchase of rival Credit Suisse.
It’s the first time that CEO Sergio Ermotti has come up with a concrete number of how many jobs the giant merger will cost, although the forced layoffs he disclosed at a meeting with analysts on Thursday are likely to be just a small part of the total reduction in headcount. .
The Credit Suisse acquisition increased UBS’s workforce by 45,000 to just under 120,000 today.
UBS has previously said it wants to cut staff costs by about $6 billion over the next few years, which is effectively more than half of Ermotti’s pledge to cut costs by more than $10 billion.
UBS announced on Thursday it would retain Credit Suisse’s Swiss unit, adding to a major operation in which the two creditors have substantial overlap. The decision comes after UBS earlier this month waived extensive guarantees granted by the Swiss government in March to sweeten the acquisition.