UBS shares fall after Credit Suisse rescue deal

UBS shares tumbled more than 10 per cent in early trading on Monday after analysts warned that the Swiss bank’s rescue of rival Credit Suisse threatened to distract management and damage returns this year.

Swiss regulators orchestrated the historic takeover at the weekend after outflows from Credit Suisse accelerated last week, deepening fears over the future of the country’s second-largest bank.

Shares in UBS were down 13 per cent at SFr14.79. The all-share deal valued Credit Suisse at $3.25bn, less than half the bank’s market capitalisation at the close of trading on Friday.

“UBS has traditionally operated a high returning, high quality, stable franchise,” analysts at Keefe Bruyette & Woods noted. “The acquisition of Credit Suisse throws much of this into question, in our view.”

While RBC analysts said that “the acquisition of CS by UBS seems attractive on paper longer term, we think this is unlikely to be the preferred route for UBS, but it appears to have been a necessary move not just for Swiss banks but the global banks sector overall”.

The decline in UBS shares came as the deal failed to extinguish fears over the global banking sector, which was rocked by the sudden collapse earlier this month of California-based Silicon Valley Bank.

As part of the deal, UBS secured a loss guarantee of up to SFr9bn ($9.8bn), but only after the bank had borne the first SFr5bn of losses on certain portfolios of Credit Suisse’s assets. As part of the deal, the Swiss National Bank also agreed to offer UBS a SFr100bn liquidity line.

In a memo on Monday to UBS’s 74,000 staff, chief executive Ralph Hamers said Credit Suisse should be treated as a competitor until the deal has closed.

“Please remember that, until this deal closes, Credit Suisse is still our competitor and we cannot discuss business matters with their employees or take any action that could be interpreted as a step toward the merging of business,” Hamers wrote.

Swallowing up its smaller rival cements UBS’s position as the world’s largest wealth manager, with operations spanning the US, Europe, the Middle East and Asia. The combined entity will have $5tn of invested assets globally.

UBS chair Colm Kelleher said on Sunday that UBS intended to keep Credit Suisse’s Swiss business, but it intended to shrink the group’s investment bank.

Hamers told staff in the memo that “bringing UBS and Credit Suisse together will build on UBS’s strengths and further enhance our ability to serve our clients globally, deepening our best-in-class capabilities”.