UBS Takeover of Credit Suisse & What It Means for Banking Aspirants
News has spun FAST for Credit Suisse with UBS confirming to buy its rival for $3.25 bn. If you’re a banking investment banking aspirant or global markets enthusiast. Keep reading this analysis to understand:
- Key aspects of the deal and
- Its impact on UBS and Credit Suisse job offers
- Fallout on markets at large
As part of the deal, the Swiss National Bank agreed to offer a $100bn liquidity line to UBS. Swiss regulator, FINMA will engineer the deal framework to inject stability. UBS was known to be averse to the deal, seeking concessions and protections from the government on pending legal cases and regulatory investigations into CS.
It's being called the deal of the century with:
1. UBS tangible book value has spiked by 74% making it #2 in global wealth management.
2. UBS expects to generate cost savings of $8 billion per year by 2027 given the business model and footprint overlap.
2. The deal leaves capital ratios unscathed with 56 billion CHF CS equity absorbed.
What would be the market fallout?
✅The takeover reinforces UBS as a global wealth management leader with $5 trillion of invested assets, boosting its ambitions for expansion in Asia and the Americas.
✅The forced takeover will wipeout Credit Suisse shareholders who’ll receive the equivalent of just 0.76 Swiss francs in UBS shares for stock (worth 1.86 Swiss francs on Friday's closing). Credit Suisse’s $17B of “additional tier one” bonds (AT1), a riskier class of bank debt, will be worthless. AT1 bondholders include firms like Invesco Pacific Investment Management, Invesco, and BlueBay Funds Management. It is the biggest wipeout till date to Europe’s €250bn AT1 market 🤯
✅The deal may throw European debt markets into a lurch, particularly given bondholders were having heavier losses forced on them than shareholders in Credit Suisse.
✅While the Swiss govt strong-armed the deal to plug a banking crisis, rising interest rates to combat inflation will keep posing a huge risk to the global financial system. Case in point being how HSBC threw a lifeline to Silicon Valley Bank by acquiring its British arm while the larger US entity continues its fight to survive.
How does this impact graduate jobs and job seekers especially in Asia?
📌Investment banking headcount will likely take a hit given UBS Chairman, Colm Kelleher’s recent statement to downsize the CS IB business to align with UBS’ conservative risk culture. This will likely quash the CS First Boston spinoff plans 🚨
📌CS's Asian jobs will likely be protected during the merger given the synergies between regional bank operations between UBS and CS. So wealth management roles will be safer as UBS hopes to leverage it in future.
📌Sales and trading may take a hit in the wake of UBS's press release that majority of CS markets positions will move to non-core.
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