UBS Pulled in $28 Billion in Run-Up to Credit Suisse Deal

UBS Group AG attracted $28 billion from wealthy clients in the months running up to its takeover of Credit Suisse Group AG, in an early indication of how many assets the combined firms will be able to retain.

(Bloomberg) — UBS Group AG attracted $28 billion from wealthy clients in the months running up to its takeover of Credit Suisse Group AG, in an early indication of how many assets the combined firms will be able to retain.

The net new money at the firm’s global wealth management business included $7 billion that came in the 10 days after the takeover of its smaller rival was announced. By comparison, Credit Suisse clients pulled about $53 billion from its wealth unit during the quarter.

Still, the inflows were a bright spot in a first quarter that saw UBS miss estimates for profit as it set aside $665 million for litigation tied to its role in selling mortgage securities before the financial crisis. The firm also warned that geopolitical tensions and recent liquidity concerns in the banking industry are depressing client activity and could affect new money in the months to come.

Retaining clients and assets is a key challenge for Sergio Ermotti, who was brought back as UBS Chief Executive Officer as the firm embarks on an extensive restructuring following its rescue of the smaller rival in late March. Credit Suisse revealed on Monday that it borrowed far more from a central bank liquidity backstop than previously known, with clients continuing to flee after the deal was announced.

“We are taking another transformational step in UBS’s journey, while remaining committed to our culture, strategy and disciplined risk management,” Ermotti said in the statement. “With this transaction, we expect to reinforce our position as a leading and truly global wealth manager.”

UBS has been a beneficiary of Credit Suisse’s troubles, with wealthy clients adding $23.3 billion net new fee-generating assets already in the fourth quarter. It is now paying about 3 billion francs for a firm that finished March with a book value of 54 billion francs, giving it plenty of protection against losses. 

Despite the new money that came in, revenue at the wealth business fell short of estimates, with UBS pointing to “‘subdued” client activity that continued into the second quarter. Ermotti said in an interview with Bloomberg TV that the bank isn’t ruling out a potential recession later this year or early next year.

In the investment bank, where traders and dealmakers also had to contend with volatility from the banking crisis and uncertainty about the direction of interest rates, income from equities trading fell 23% from a year earlier, compared with 14% at the biggest US firms. Fixed-income trading gained 0.8%, ahead of the 1% decline on Wall Street.

Bringing back Ermotti is part of a broader effort by UBS to build a management team with extensive institutional knowledge to oversee the integration. Christian Bluhm agreed to remain in his role as the bank’s chief risk officer, six months after announcing his departure, while his appointed successor Damian Vogel will now head risk control activities related to the integration. 

Ermotti has also been holding talks with former UBS bankers including Tom Naratil about returning to the firm, people familiar with the matter have said. UBS also tapped strategy consultant Oliver Wyman for help on the integration, reconnecting Ermotti with former adviser Huw van Steenis, vice chair of the firm who left the Swiss bank under former CEO Ralph Hamers, Bloomberg has reported.

To finance the deal and shore up capital during the integration, UBS has put its share buybacks on hold and recently won approval to use stock repurchased over the past year to pay for Credit Suisse. It had also launched a buyback of euro-denominated notes issued just before it agreed to take over its troubled rival, though most investors chose to hold on to the debt in a vote of confidence for the lender.

Ermotti said in the interview that he plans to resume the share buyback eventually, though it’s still too early to say when. “We are reiterating our intention to have a progressive cash dividend increase every year and we definitely have an intention to resume share buybacks when its appropriate,” he said.

Chairman Colm Kelleher has said that the integration will take as long as four years, and that the deal’s complexity makes it more challenging even than the emergency rescues forged during the height of the 2008 crisis. Kelleher said that there were “clearly” parts of Credit Suisse that had cultural issues, particularly the investment bank and some risk functions.

During Ermotti’s first tenure as CEO, the bank pivoted away from investment banking and further toward wealth management, allowing it to make a predictable profit of between $4 billion and $8 billion every year for the past five years. The Swiss lender has said it plans to significantly cut Credit Suisse’s investment bank and ensure that its risk profile is more aligned with its own.


(Updates with Ermotti comment from 12th paragraph.)

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