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The president of UBS, on the purchase of Credit Suisse: "It is a historic step, but we never wanted to get there"

2023-04-05T12:49:35.604Z


Colm Kelleher assures the general meeting of shareholders that the operation will offer "great opportunities" to the largest bank in Switzerland


The UBS bank holds its general shareholder meeting this Wednesday, a historic appointment that comes a few weeks after closing the purchase of Credit Suisse, which also had its meeting precisely this Tuesday.

The president of UBS, Colm Kelleher, has assured before the shareholders that the operation will offer great opportunities to the organization.

“It is a historic step, but we never wanted to reach it”, he has said of a swap that was carried out over the weekend, urgently and without the approval of the board.

The absorption of Switzerland's second bank by the first "marks a new beginning and great opportunities for the combined entity, as well as for this country as a financial center," said Kelleher in Basel (northwestern Switzerland).

The express sale of Credit Suisse to UBS, which closed on Sunday March 19, was the only way out that the Swiss authorities found to avoid an uncontrolled fall of a symbol of Swiss financial power.

UBS agreed to the purchase for 3,000 million euros, a far amount from the 7,500 million at which the entity was valued only two days before.

It is true that the bank had been dragging business and reputational problems for years, which different departments of the company failed to straighten out.

“We wanted to put all our energy and our efforts into reversing the situation and getting the bank back on track,” Axel Lehmann, Chairman of Credit Suisse, told the shareholders meeting on Tuesday.

To which he added, with some resignation: “It hurts me that we didn't have time to do it, and that in that fateful week of March our plans were disrupted.

For that I am sincerely sorry."

In announcing the acquisition, the Swiss authorities cited an article in the constitution that allows them to issue temporary ordinances "to counter existing or imminent threats of serious disturbance of public order or of internal or external security."

In this case, this included overturning the merger laws by shareholder vote.

Kelleher has stated that the purchase “is the first merger between two global banks of systemic importance”.

For this reason, he has said, its integration will be a huge challenge and one of the main focuses of the entity's strategy.

To follow this path, which will not be easy, UBS has appointed Sergio Ermotti as its new CEO starting this Wednesday, replacing Ralph Hammers.

The president of UBS has also underlined that the purchase of Credit Suisse will accelerate the bank's expansion in the wealth and wealth management sector.

On the other hand, he has reiterated that the entity will reduce the capital invested in its investment banking until it falls below 25% of risk assets.

More dividend distribution

The Irishman who runs UBS has announced that a 10% dividend increase will be proposed to the board, up to 55 Swiss franc cents (similar amount in euros) per share.

In addition, it has advanced that UBS suspends the share buyback program due to the acquisition of Credit Suisse.

Despite this, he has said that it will resume “as soon as possible”.

UBS earned 7,600 million Swiss francs in 2022 and on March 19 it agreed to buy Credit Suisse for 3,000 million Swiss francs (3,020 million euros) to save it from possible bankruptcy.

The operation was controversial due to the order in which the losses were assumed.

The authorities upset the usual order of priority and the shareholders recovered part of their investment to the detriment of the holders of the

coconuts

(acronym for convertible contingent bond) who have lost everything.

Holders of Credit Suisse convertible bonds, known as AT1, held $17 billion (about 16 billion euros), which were fully redeemed.

The shareholders, however, went to the 3,000 million exchange.

This atypical movement caused even more turbulence in the markets in the following days, mainly in the Old Continent, forcing the ECB to issue an urgent statement to try to stop this vicious circle: it assured that, in the event of a crisis, in Europe they will assume the losses first the shareholders and creditors and, only later, the holders of those bonds.

"The EBA [European Banking Authority], the ECB as supervisor and the SRB [Single Resolution Board] have been specific in terms of the order of priority that applies in Europe", these institutions emphasized in a joint note that managed to calm the markets.

four different scenarios

The Swiss Financial Market Supervisory Authority (Finma) explained this Wednesday that it was contemplating four possible scenarios to resolve the Credit Suisse crisis.

In addition to the acquisition by another entity, temporary nationalization, resolution and an emergency plan for the bankruptcy of the institution were proposed.

"From the beginning, Finma pursued the goal of keeping as many options open as possible," said Marlene Amstad, president of the organization's board of directors, at a press conference.

"On March 19, a draft resolution decree and a bankruptcy decree with the respective action plans were also ready for signature," he indicated.

Regarding the definitively implemented action, facilitating the acquisition of Credit Suisse by its rival UBS, the person in charge of Finma has indicated that Switzerland has been the first country to deal with the practical application of legislation to address crises in banks too big to fail .

On the other hand, he has defended the final decision of the authorities to avoid the risk of "not stopping an imminent financial crisis."

This, she has emphasized, “would have had extremely damaging effects on Switzerland and its financial system.

We would have risked throwing away the first domino tile”.

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Source: elparis

All business articles on 2023-04-05

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