UBS chairman’s top-secret preparations pay off in a Credit Suisse moment

When Colm Kelleher became chairman last April, he inherited a feasibility study by predecessor Axel Weber on what the acquisition of Credit Suisse Group AG would look like until at least 2020. And earlier this year, after clients pulled billions of dollars from neighboring Paradeplatz, Kelleher convened a small group of top advisers from his alma mater Morgan Stanley to draw up contingency plans, according to people with direct knowledge of the matter.

The project was top secret and few at US Bank knew what their senior mergers and financial services colleagues were working on except a tight circle of UBS executives, said the people, who asked not to be identified discussing the extent of the preparations. Said. Those efforts meant that in mid-March, as a crisis of confidence in US regional banking spread to Switzerland, UBS was ready to go.

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On March 15, when Credit Suisse received a lifeline from the Swiss central bank, its crosstown rival quickly turned from a war game to execution. UBS hired JPMorgan Chase & Co. Morgan Stanley met with consultants and bankers, some of whom flew to Zurich, and signed non-disclosure agreements.

This was followed by round-the-clock negotiations throughout the crucial weekend, which saw some consultants working on just three hours of sleep and without a shower. It produced a rescue deal that wiped out some bondholders, crushed traditional shareholder rights, raised too-too-big-to-fail concerns and angered the Swiss public – but helped precipitate an even bigger global crisis. Be successful

reward, risk

The emergency alliance provides a huge boost for a bank that investors already value as Europe’s healthiest flagship firm – as well as enough risk to jeopardize that title. At its helm is a 65-year-old Irish banker who is well aware of how a crisis transaction can reshape a company and how a volatile investment bank can derail it.

Read also: ‘Your money is no longer safe in Switzerland,’ said former Credit Suisse employee at shareholders meeting.

Kelleher will oversee the most impressive bank combination in more than a decade. It is he who will shape the global battle for the lucrative business of managing elite assets, and create a megabank that not only dwarfs every other Swiss lender but more than doubles the size of the country’s economy.

“This is a historic day in Switzerland and a day, frankly, we hoped would not come,” Kelleher said on the analyst call late Sunday after the deal had been agreed. “While we have not commenced discussions, we believe this transaction is financially attractive to UBS shareholders.”

Kelleher and the boards of UBS will face shareholders, who were denied a vote on the deal, at the firm’s annual meeting on Wednesday, a day after Credit Suisse’s board spent its event apologizing to angry investors. UBS has begun assembling teams to assess the stars, systems and clients it wants to avoid in a big deal, with more than $1.5 trillion in assets spread across the globe and more than 12,000 money managers. Builds a bank.

Spokespeople for UBS and Morgan Stanley declined to comment.

bargain price

UBS shareholders have largely applauded a buyout that saw the firm gobble up its rival, by one measure, for 5 cents on the dollar. The 3-billion-franc ($3.3 billion) deal was backed by extensive guarantees and liquidity provisions, and offered a golden opportunity to offload the crown jewels of Credit Suisse – its Swiss and wealth management businesses – at a bargain price.

One way to look at it: Last year, before the acquisition suddenly collapsed, UBS agreed to spend $1.4 billion on US roboadvisor Wealthfront and its $27 billion in assets under management. With Credit Suisse, it had paid a little more than double that for more than 50 times the client’s assets.

Meanwhile, bondholders have focused more on the downside, with credit rating agencies downgrading their outlook on UBS’s debt. Investors need only listen to Kelleher to understand why that is. The deal was just hours old when Kelleher reached out to Sergio Ermotti, eventually bringing back the former UBS chief executive and sidelining Ralf Hammer in favor of a leader with more experience on the dramatic restructuring.

“I would argue that this is bigger than any deal we did in 2008,” Kelleher said at a press conference last week explaining the move. “This brings with it significant execution risk.”

history lesson

UBS has made steady progress on a low-risk strategy in a political spotlight, years of integration efforts and tens of thousands of job cuts. Authorities will have to persuade bankers to cooperate who were not long ago rivals, and fend off poaching attempts from other global firms that are preying on the uncertainty.

Iqbal Khan, who helped run Credit Suisse’s wealth business for several years before jumping to UBS in 2019, is already bracing his former colleagues for being on the street before his bank deal closes. One wants to stop the brain drain.

“The task of integrating CS will be enormous, even if plans existed prior to the latest developments,” said Barbara Kasu, professor of banking and finance at Bayes Business School.

Kelleher would know the opposite of being right.

One of nine children who grew up in County Cork, Ireland, he spent more than 25 years at Morgan Stanley, rising through the trading and capital markets ranks. A lively and outgoing salesman with a fondness for golf, cigars and modern British art, he served as chief financial officer of a Wall Street bank during the financial crisis, even leaving his office after suffering a back injury in a car accident. Conducted business lying on the floor. ,

It was in this role that the head of history at the University of Oxford, Citigroup Inc., in early 2009. Key Smith helped oversee Morgan Stanley’s bold move to buy Barney’s brokerage unit.

The integration took years and was initially stumbling, but its success turned Morgan Stanley into a wealth management giant and made it the best-performing major global bank stock of the past 10 years. The Wall Street firm is currently the only investment bank that can claim more than $5 trillion in client assets across its wealth and investment management businesses. UBS says its Credit Suisse acquisition will now make it two.

Kelleher’s role after the financial crisis was to fix up Morgan Stanley’s investment bank so that a more stable money unit could shine. There, he tackled a trading business, unwinding long-dated derivatives and illiquid, hard-to-value assets – a process that sometimes resulted in huge losses. As he now deals with Credit Suisse’s investment bank, he has a 9 billion-franc government backstop in case the same type of asset proves difficult.

After shrinking its own trading operations under Ermotti nearly a decade ago, UBS has little affinity for the markets businesses Credit Suisse is bringing into its fold — particularly its fixed income division. The lot will be eliminated as UBS aims to be a combined investment bank with 25% of its risk-weighted assets.

UBS was created 25 years ago in a merger between Swiss Bank Corp and Union Bank of Switzerland, fueled by grandiose wealth-management ambitions and a fallout from business risk. And to execute this combination, Kelleher will be able to rely on Ermotti, an executive who has held the seat before. During his nine-year stint as CEO of UBS between 2011 and 2020, Ermotti steered the group through a restructuring that saw it move away from riskier business lines after it took a government bailout in the financial crisis. Shares are still below where they traded before that crisis.

One of Ermotti’s unfulfilled ambitions during his time in charge was to execute a large, transformational acquisition for UBS. The Swiss national, who has been in touch with the Hammers since handing over the reins, now has the chance to do what has been billed as the best fit for what lies ahead: selling off Credit Suisse’s troubled investment banking assets, while at the same time Building a powerhouse wealth management and restoring the health of Switzerland’s finance industry.

For Kelleher, who will be undertaking the Camino de Santiago – a 500-mile pilgrimage that ends in northern Spain – after retiring from Morgan Stanley in 2019, it could be his biggest journey yet.

The text of this story is published from a wire agency feed without any modification.