UBS Chairman’s Top-Secret Prep Paid Off in Credit Suisse Moment

Colm Kelleher was ready when a crisis of confidence that started in US regional banking spread to Switzerland.

(Bloomberg) — UBS Group AG pulled off one of the biggest bank deals ever in a matter of days. But the groundwork had been laid for years.

When Colm Kelleher became chairman last April, he inherited feasibility studies by predecessor Axel Weber dating back to at least 2020 on what a takeover of Credit Suisse Group AG would look like. And early this year, after clients pulled tens of billions of dollars from the Paradeplatz neighbor, Kelleher called on a small group of top advisers from his alma mater Morgan Stanley to ramp up contingency planning, according to people with direct knowledge of matter.

The project was top secret and few at the US bank knew what their senior mergers and financial services colleagues were working on with a tight circle of UBS executives, said the people, who asked not to be identified discussing the extent of the preparations. Those efforts meant that in mid-March, as a crisis of confidence that started in US regional banking spread to Switzerland, UBS was ready to go.

On March 15, when Credit Suisse received a lifeline from the Swiss central bank, its crosstown rival quickly turned from war gaming to execution. UBS called on the Morgan Stanley advisers and bankers at JPMorgan Chase & Co., some of whom jetted down to Zurich and signed non-disclosure agreements.

What followed was round-the-clock negotiations on the decisive weekend that saw some advisers working on just three hours of sleep and without showers. That produced a rescue deal that wiped out some bondholders, trampled on traditional shareholder rights, heightened too-big-to-fail concerns and enraged the Swiss public — but managed to stave off an even bigger global crisis.

Reward, Risk

The emergency tie-up offers huge upside for a bank that investors already valued as Europe’s healthiest major firm — as well as enough risk to threaten that title. At its helm is a 65-year-old Irish banker well acquainted with how a crisis transaction can reshape a company and how a volatile investment bank can derail it. 

Kelleher will oversee the most impactful bank combination in more than a decade. It’s one that will shape the global battle for the lucrative business of managing elite wealth, and create a megabank that not only dwarfs every other Swiss lender but is double the size of the nation’s economy.“This is not in any way an easy deal to do,” Kelleher told shareholders at the firm’s annual meeting Wednesday, saying the integration will take three to four years. “You can’t just put numbers together and reach a sum. You have to understand that there is huge amount of risk in integrating these businesses.”

The comments came a day after Credit Suisse’s board spent their annual meeting apologizing to angry investors. Switzerland’s banking regulator said Wednesday it considered putting Credit Suisse into bankruptcy after an “unprecedented” bank run, before deciding on the takeover.

UBS has started gathering teams to assess the stars, systems and clients it wants to keep from a massive deal that creates a bank with over $1.5 trillion in assets and more than 12,000 wealth managers spread across the globe.

Spokespeople for UBS and Morgan Stanley declined to comment.

Bargain Price

UBS shareholders have largely applauded a purchase that saw the firm grab its rival for, by one measure, 5 cents on the dollar. The 3 billion-franc ($3.3 billion) deal was backed by extensive guarantees and liquidity provisions, and offered a golden opportunity to land the crown jewels of Credit Suisse — its Swiss and wealth management businesses — at a bargain price.

One way of viewing it: Last year, UBS agreed to spend $1.4 billion on US roboadviser Wealthfront and its $27 billion in assets under management, before the acquisition abruptly collapsed. With Credit Suisse, it had just paid little over double that for more than 50 times the client assets.

Bondholders, meanwhile, have been more focused on the downside, with credit rating agencies cutting their outlooks on UBS’s debt. Investors need only listen to Kelleher to understand why. The deal was just hours old when Kelleher reached out to Sergio Ermotti, ultimately bringing UBS’s former chief executive officer back and pushing aside Ralph Hamers in favor of a leader with more experience on dramatic restructurings. 

“I would argue it’s bigger than any deal that was done in 2008,” Kelleher said at a press conference last week explaining the move. “That brings with it significant execution risk.” 

History Lesson

UBS has traded steady progress on a low-risk strategy for a political spotlight, years of integration efforts and tens of thousands of job cuts. Executives will have to convince bankers who were not long ago rivals to cooperate, and stave off poaching efforts from other global firms preying on the uncertainty. 

Iqbal Khan, who helped run Credit Suisse’s wealth business for several years before jumping to UBS in 2019, has already been on the road courting his former colleagues to stick around as his bank aims to halt a talent exodus before the deal closes.

“The task of integrating CS will be huge, even if plans existed prior to the latest events,” said Barbara Casu, professor of banking and finance at Bayes Business School. 

Kelleher will know the upside of getting it right. 

One of nine children who grew up in Ireland’s County Cork, he spent more than 25 years at Morgan Stanley, rising through the trading and capital markets ranks. A lively and outgoing salesman with a fondness for golf, cigars and modern British art, he served as the Wall Street bank’s chief financial officer during the financial crisis, even conducting business lying down on his office floor after suffering a back injury in a car accident. 

It was while in this role that the University of Oxford history major helped oversee Morgan Stanley’s bold move to buy Citigroup Inc.’s Smith Barney brokerage unit in early 2009. 

The integration took several years and hit stumbling blocks at the start, but its success transformed Morgan Stanley into a wealth management giant and made it the best-performing major global bank stock of the last 10 years. The Wall Street firm is currently the only investment bank that can boast more than $5 trillion of client assets across its wealth and investment management businesses. UBS says its Credit Suisse takeover will now make that two. 

Kelleher’s role after the financial crisis was to fix Morgan Stanley’s investment bank so the more stable wealth unit could shine. There, he dealt with a trading business that was unwinding long-dated derivatives and illiquid, hard-to-value assets — a process that occasionally led to chunky losses. As he now tackles Credit Suisse’s investment bank, he has a 9 billion-franc government backstop in case those same types of assets prove tricky. 

Having downsized its own trading operations under Ermotti around a decade a go, UBS has little attachment to the markets businesses Credit Suisse is bringing into its fold — particularly its fixed income division. Much will be wound down as UBS aims for a combined investment bank that accounts for 25% of its risk-weighted assets.

UBS itself was created in a merger 25 years ago between Swiss Bank Corp. and Union Bank of Switzerland that featured grand wealth-management ambitions and fallout from trading risk. And to execute this combination, Kelleher will be able to lean on Ermotti, an executive who has been in this seat before. During his nine-year stint as UBS CEO between 2011 and 2020, Ermotti steered the group through a restructuring that moved it away from riskier business lines after it had to take a government bailout in the financial crisis. The shares still are below where they traded before that crisis.


One of Ermotti’s unfulfilled ambitions from his time in charge was to execute a large, transformational acquisition for UBS. The Swiss national, who kept in touch with Hamers after handing over the reins, now has his chance, having been deemed the best fit for what comes next: selling off Credit Suisse’s troublesome investment banking assets, while at the same time building a powerhouse of wealth management and restoring the standing of Switzerland’s finance industry. 

For Kelleher, who walked the Camino de Santiago — the 500-mile pilgrimage that ends in northern Spain — after retiring from Morgan Stanley in 2019, this might be his biggest journey yet.

Read More:

  • It’s Time for UBS to Take an Axe to Credit Suisse
  • The Triumph of UBS Is Also the Humbling of Swiss Banking
  • Michael Klein Loses the Deal of His Life in CS First Boston
  • UBS Tells Credit Suisse Bankers: Expect ‘Culture Filter’  

–With assistance from Ambereen Choudhury, Marion Halftermeyer and Myriam Balezou.

(Adds comments from annual meeting starting in eighth paragraph.)

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