UBS poised to keep Credit Suisse domestic bank and drop brand

Soon to be seen less around Switzerland? The Credit Suisse logo on a building in Basel. © Keystone / Georgios Kefalas

UBS is reportedly set to decide in favour of keeping Credit Suisse’s domestic bank, ending months of speculation about the future of the business.

The Zurich-based lender has set a target of winding down the Credit Suisse brand in the country, people familiar with the matter told the Bloomberg news agency. Executives are preparing for an announcement as soon as the end of this month, the people said, who asked not to be named discussing private details.

UBS has long signalled its preference to subsume its erstwhile local rival’s lucrative domestic business rather than spin it off – but Switzerland’s elections, due in October, had forced executives to downplay their plan. The domestic job cuts likely to ensue would add to controversy already heightened over the market power that UBS now wields in Switzerland.

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No decision has formally been taken yet and plans could still change, the people said. A spokesman for UBS declined to comment on the plan. 

UBS shares gained 1.3% on Wednesday and have risen almost 26% this year.

Earlier this month UBS announced that it was terminating an agreement with the Swiss government in which the state guaranteed up to $10 billion (CHF8.76 billion) of losses that could stem from the acquisition of Credit Suisse assets. That step, freeing the bank from ties to public funds, gives UBS more flexibility now in its plan for the domestic unit, one of the people said. It also removes the obligation to report to the government on the management of assets covered by the state backstop. 

In the five months since the takeover was brokered, the government has refrained from taking an explicit stance on what the future of the Swiss unit should be. The financial regulator, FINMA, said in March that the application of competition rules was subordinate to the financial stability priorities contained in the takeover. 

“UBS is free to choose its business model within the regulatory framework,” a spokesman for the Swiss government said in response to questions over the integration of Credit Suisse’s domestic bank.

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The plan now sets the stage for thousands of potential job cuts in Switzerland, with a large proportion coming in the retail business. UBS is due to release more detailed information around its strategy along with second-quarter results for the combined banks on August 31. 

UBS executives have still sought to keep their options open regarding the domestic unit. UBS has until recently devoted resources to planning for a potential spin-off of the Credit Suisse Swiss business, two of the people said. A divestment, spin-off or IPO of the business could, for instance, deliver an instant return which could be given to shareholders. The business had a roughly a book value of CHF13 billion ($14.8 billion) based on Credit Suisse’s 2022 annual report. 

UBS vice chairman Lukas Gaehwiler said in April that the Credit Suisse brand would continue to exist in Switzerland for the foreseeable future.

About 30% of the megabank’s combined staff is in Switzerland but it is spread across the domestic businesses as well as employees who are based in the country but work for corporate functions or in wealth and asset management.

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Credit Suisse’s Swiss unit had long been a profitable anchor while the rest of the bank lurched from crisis to crisis. It was the only one of Credit Suisse’s four main divisions to make money last year. 

Combined, Credit Suisse and UBS would account for about 35% of domestic deposits, 31% of corporate loans and 26% of mortgages, analysts at Citigroup Inc. including Andrew Coombs wrote in a note. In Switzerland, a combined UBS-Credit Suisse Switzerland would compete with Raiffeisen and Zurich cantonal bank, as well as more than 200 other lenders.

Under previous CEO Tidjane Thiam, Credit Suisse had already proposed a partial IPO of the Swiss unit in 2015.

Credit Suisse was the leader in Swiss domestic investment-banking activity in terms of deal value for at least a decade. That points to the role of the bank’s historical predecessor, Schweizerische Kreditanstalt, founded by industrialist and railway pioneer Alfred Escher in 1856 to finance the nation’s industrial expansion.