The parent companies of UBS and CS have merged. This means that the integration is gaining momentum. The risks remain considerable, but the major bank can rely on a large financial cushion.
UBS has been working intensively on the CS integration for months. But it is only now really getting started. On Friday, UBS announced that it had completed the legal merger of the two parent companies UBS AG and Credit Suisse AG. This means that Credit Suisse will no longer be an independent legal entity at group level.
Sergio Ermotti has kept his word. He had promised that this step would be taken by the end of May – the UBS boss is keeping the integration pace high. In the run-up to the merger, he also reorganized the responsibilities in the management in order to reorganize UBS in terms of personnel. The former CS boss and head of the Credit Suisse division in the UBS Group, Ulrich Körner, will be leaving the merged company.
The structural adjustment was already underway: the holding companies of UBS and CS were merged in June 2023. After the merger of the parent companies, that of the operating units in the countries will follow in the coming months: on June 7 in the USA, by the end of September at the country companies in Switzerland. Only when the CS units have been fully merged with the corresponding UBS unit can the business areas be merged.
Then the plans that the teams under the leadership of Integration Director Michelle Bereaux have been preparing over the past few months will be put into action. They affect almost all aspects of the bank: the legal structure, the organization, customer service, the IT platforms, the products and, of course, the employees who look after the relevant areas.
For them, this means job cuts. This is already underway in Switzerland and abroad. According to Ermotti, the majority of job cuts will take place in the second half of the year. In Switzerland, they are to take place after the merger of the Swiss companies towards the end of 2024 and in 2025 and 2026. In the coming months, the bank will need more human resources in some cases to manage the integration, says the UBS boss.
But what exactly does the legal merger mean for UBS and the upcoming integration work? An overview.
Corporate structure becomes simpler
Large banks such as UBS and CS have a large number of companies under their holding umbrella. At Credit Suisse in particular, the parent company combines hundreds of subsidiaries, some of which tie up capital and can pose a security problem. UBS will clean up and simplify this: “It must be decided on a case-by-case basis whether these should be merged, liquidated or new ones founded,” says Michael Klien, bank analyst at ZKB.
Every decision has not only legal, but also tax and organizational consequences. UBS has probably already drawn up plans for the restructuring. But only now, after the merger of the parent companies, can the process begin. With a simplified structure, UBS is not only removing complexity from the group, but it should also improve the possibility of an orderly winding up of the bank in an emergency.
The legal merger was an administrative Herculean task for UBS: In order to streamline the legal structure, the bank had to reach agreements with 80 different regulatory authorities in 50 different countries.
Everyone becomes a UBS customer
The way is now clear for all CS customers to switch to UBS. They were informed by letter in Switzerland about the change of ownership, but not much has changed in their day-to-day banking transactions so far.
“The legal merger is a prerequisite for CS customers to be transferred to UBS,” says Klien. Legally, the Swiss units will be merged by autumn. A gradual transfer to the UBS systems is planned from 2025. The CS brand will only gradually disappear over the next year.
The integration is also noticeable in customer service. In Switzerland, for example, the result is that the “small” wealthy customers of Credit Suisse, so-called affluents, will in future be looked after by a “normal” private customer advisor at UBS. At CS, all wealthy individuals, from potential millionaires to multimillionaires, have been brought under the umbrella of Swiss private banking.
According to Tomi Laamanen, professor of strategic management at the University of St. Gallen, the biggest operational challenge for UBS is to retain its customers. But the best employees must also stay. “At the same time, thousands are being laid off in order to meet cost targets. That is a difficult balancing act, especially in terms of communication,” says the merger expert.
IT migration is the real risk
The transfer of customers from CS to UBS is also closely linked to the migration of CS applications to the UBS platform. In addition to job cuts, streamlining the IT infrastructure is a prerequisite for UBS to achieve its savings target of 13 billion dollars by 2026.
At the same time, Ermotti described delays in merging the IT systems as the real risk, and not that the bank cannot carry out the migration. In order to reduce the risks for customers in the merger, UBS will only take over a tenth of CS’s 3,000 software applications, the CEO said at a media event.
According to Laamanen, it is clear that IT migration is a major cost lever. However, it entails enormous risks, for example in the area of compliance, but also in terms of cyber security. The compliance of both banks is reflected in their IT systems. The HR processes are also closely linked to IT.
The integration expert sees a financial risk for UBS in the fact that the IT migration takes longer and the entire integration is delayed. “Which major IT project has ever kept to its schedule?” asks Laamanen. Ermotti could only realize the synergies later than planned, which would be poorly received on the stock market.
Financial failure almost impossible
Overestimating the potential for savings is a classic mistake in takeovers. But Laamanen puts it into perspective, saying that the success rate in realizing synergies is astonishingly high across all industries: over 80 percent of companies stick to their integration cost budgets.
In addition, the CS rescue is a special case because the takeover was orchestrated by authorities and the government. Measures were ordered to minimize the risks for UBS – for example, the financial market regulator instructed Credit Suisse to write off special bonds worth 16 billion Swiss francs in order to give UBS a financial safety cushion for the risks on CS’s balance sheet that were difficult to estimate at the time.
This cushion is now benefiting UBS. “It is almost impossible for the UBS-CS merger to fail financially,” says Laamanen, especially since the large reserve cushion in the form of the negative goodwill created during the merger can cushion not only the financial risks, but also the integration risks. This means that the operational synergies are very lucrative for UBS.
This is in the interests of UBS shareholders, who can expect an improvement in profitability even if the integration process is difficult. In addition, the legal merger marks the start of the planned share buyback of over one billion dollars, which is to begin in the second half of the year. UBS shares should benefit from this.