(Basel) UBS executives told their shareholders on Wednesday that the hastily arranged takeover of Credit Suisse was a “Herculean task” fraught with risk, but that it was the right decision to make.
The president of the first bank of Switzerland Colm Kelleher said he “understands” that all shareholders are “not happy”.
But “I am convinced that we made the right choice,” he assured at the annual general meeting in Basel.
On March 19, under intense pressure from the Swiss authorities, the number one in the Swiss banking sector agreed to buy its rival for the meager sum of 3 billion Swiss francs (equivalent in euros), negotiating however solid financial guarantees from central bank and government.
UBS shareholders, like those of Credit Suisse – meeting in Zurich on Tuesday – did not have a say.
The merger of these two banks already considered too big to fail before their merger will be “a Herculean task”, recognized Lukas Gähwiler, vice-president of UBS.
Too big to survive
The director of Finma, the policeman of the financial markets in Switzerland, used the same term on Wednesday in Bern. “It’s a Herculean task that will take several years,” said Urban Angehrn, who is calling for more power, particularly in terms of sanctions, to be able to regulate the market in the face of this emerging giant.
UBS will metamorphose into a banking colossus at the head of 5000 billion in invested assets once the merger is sealed.
“This new giant bank worries us,” said Vincent Kaufmann, director of the Ethos foundation, which represents pension funds in Switzerland. He underlined the concentration of risks that will result, the reduction of competition in Switzerland and the future job losses.
Together, the two banks employ 120,000 people worldwide, including 37,000 in Switzerland. Job cuts could represent 20 to 30% of the workforce.
“We buy a bank without doing due diligence”, without knowing “what is in the cupboards”, he added.
But the meeting of UBS was held in a much calmer atmosphere than that of Credit Suisse, where shareholders proclaimed their anger for five hours.
“It’s a bad solution”, judge however Walter Gschwend, shareholder and former employee of UBS retired, who would have preferred a takeover by the State.
The bank will be so big that it “can no longer be saved” in the event of a shock, “it will be too big to survive”, he confided at the entrance to the general meeting.
The shareholders nevertheless largely renewed their confidence in the president of the bank, re-elected with 89.8% of the votes.
UBS had had its share of turbulent general meetings, especially in the years following the financial crisis of 2008, which had required the establishment of a rescue plan by the State.
Litigation risks
But this past seemed to be over since the major restructuring led by Sergio Ermotti, its boss from 2011 to 2020. In 2022, the bank in full financial health generated a net profit of 7.6 billion Swiss francs, where Credit Suisse lost 7.3 billion.
Faced with the magnitude of the task awaiting UBS, the Board of Directors has called back Mr. Ermotti, who is to take over the management for a second time at the end of this general meeting. He will have to carry out major work, in particular to clean up Credit Suisse and the numerous disputes accumulated over the past two years.
Wallet shot
At the start of the evening, the federal government sent a strong political signal by announcing that the most senior executives of Credit Suisse would not receive any bonuses or bonuses for 2022.
For executives at the two hierarchical levels immediately below, this variable compensation will be reduced by half or a quarter respectively. This measure concerns approximately 1,000 employees who are deprived of a total amount of 50 to 60 million francs.
But the high price has already been paid because of the collapse of the action Credit Suisse, which melted the premiums and bonuses of some 49,000 employees of 2 billion francs in a few weeks.
The removal or reduction of bonuses and bonuses does not affect the compensation of UBS officers and managers. However, to prevent things from getting out of hand again, the future megabank will have to adopt criteria in its remuneration system “such as awareness of risks and compliance with rules of conduct”, indicates the government.