Banking giant UBS said Thursday it plans to fully absorb Credit Suisse’s century-old Swiss division, which will cut thousands of jobs across Switzerland. The announcement caps more than two months of uncertainty for employees. It comes as UBS finalizes negotiations with the Swiss government over a 9 billion franc guarantee against potential losses on Credit Suisse assets. It is a crucial test of the deal that has provoked concerns about thousands of expected job cuts and drawn rebukes, lawsuits, and fears that it will create a giant Swiss bank too big to fail.
UBS CEO Sergio Ermotti and chairman Colm Kelleher said they had set out a clear timetable for the integration, aiming to “substantially ” complete it by the end of 2026. They expect to make more than $10 billion in cost savings by then. However, the overall impact of the deal could be more significant as it will also include a significant re-organization of the combined group.
The two companies had a combined market capitalization of $5 trillion and had more than 500 million customers worldwide, generating significant earnings from fees. But UBS has been hit by the global credit crisis and lost ground to rivals in areas such as investment banking, causing it to seek a merger with Credit Suisse to boost its scale and competitiveness.
The 167-year-old Swiss lender is loss-making and has faced many problems recently, including a costly bad bet on hedge funds and accusations it didn’t stop a Bulgarian cocaine ring or report secret offshore accounts used by wealthy Americans to avoid paying taxes. The Swiss state rescued it in March to prevent it from further roiling global financial markets after two U.S. investment banks collapsed.
It was a crucial test of Swiss efforts to make the country more attractive for investors and businesses by redressing its reputation for allowing tax evasion. It exposed two myths – that Switzerland was a steady, predictable place for investments and that bank problems wouldn’t rebound on taxpayers.
Swiss authorities and politicians have rebuked the deal, saying it could be “abhorrent” for Switzerland to lose its status as one of the world’s most stable places to do business. The country is a significant financial center, with its economy largely dependent on wealth management fees from abroad.
In the second quarter, UBS reported that net inflows of customer deposits slowed due to the merger but said they would likely pick up again when interest rates rise. The firm forecasted a full-year profit that would be above expectations despite the costs of absorbing Credit Suisse. It said the merger would increase its net income by about 1 billion francs ($1.17 billion) and free up more than $1.5 billion in operating expenses, excluding capital gains or losses. The merger is expected to be finalized in the fourth quarter. Shares in the Swiss bank rose by 1.5%.