UBS boss admits ‘huge’ risks in merging with Credit Suisse

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The UBS chairman has voiced confidence that the Swiss bank will benefit from a government-engineered takeover of rival Credit Suisse despite “huge” risks in knitting the global lenders together.

Speaking to UBS shareholders, Colm Kelleher gave an overview of a 3.25bn dollar (£2.6bn) takeover that he said would be completed in the next few months, alluding to the complexity of the first merger of two “global systemically important banks”.

Swiss government officials and regulators hastily orchestrated the deal that was announced on March 19 after Credit Suisse’s stock plunged and jittery depositors quickly pulled out their money.

Authorities feared that a teetering Credit Suisse could further upset global financial markets following the collapse of two US banks.

Mr Kelleher said fully integrating the banks is expected to take three to four years and that while UBS is “laser-focused on integrating Credit Suisse” there are possible pitfalls.

“There is a huge amount of risk in integrating these businesses,” he said. “But let me assure you, we are doing everything to execute this deal in the best possible way in order not to let it compromise our financial strength or stability.”

UBS executives did not face the same outcry that Credit Suisse shareholders unleashed a day earlier at what is likely to have been the 167-year-old bank’s last annual general meeting.

On Tuesday, Credit Suisse Chairman Axel Lehmann acknowledged the anger and apologised for the failures leading up to the bank’s rescue.

The Swiss attorney general’s office has opened a probe into events surrounding Credit Suisse ahead of the UBS takeover.

Meanwhile, the head of the Swiss financial regulator defended the takeover as the solution with the least risk of creating a wider crisis and damaging Switzerland’s standing as a financial centre.

The merger was “the best option” and one that “minimised risk of contagion and maximised trust”, said Urban Angehrn, chief executive of the Swiss Financial Market Supervisory Authority, or FINMA.

Mr Angern said two other options — a takeover by the Swiss government or putting Credit Suisse into insolvency proceedings — had serious drawbacks.

Insolvency would have left the functional parts of Credit Suisse in operation as a Swiss-only bank but one with a “damaged reputation” through bankruptcy, he told reporters in the Swiss capital of Bern.

A temporary takeover by the Swiss government would have exposed taxpayers to the risk of losses.

“One can well imagine, what devastating effect the insolvency of a big wealth management bank of Credit Suisse AG would have had on Swiss private banking,” Mr Angern said. “Many other Swiss banks could have faced a bank run, just as Credit Suisse did itself in the fourth quarter.”

The globe’s biggest banks, including Credit Suisse, are required to submit emergency plans for winding them up if they fail, a measure arrived at through international negotiations aimed at preventing a repeat of the 2008 global financial crisis triggered by the failure of globally connected US investment bank Lehman Brothers.

Triggering such an emergency plan “would have achieved its immediate aim” of preserving payments and supporting the economy in Switzerland, Mr Angehrn said.

“But the damage to Switzerland as a place to do business, to the reputation of Switzerland, to tax revenue and jobs, would have been enormous,” he added.

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