Safe haven: People walk out for their lunch break in the Raffles Place financial business district of the city-state. Experts say the takeover of Credit-Suisse is unlikely to adversely affect the banking system here. — AFP
SINGAPORE: The takeover of global banking heavyweight Credit Suisse raises fresh questions about the future of Switzerland’s second-largest bank, including its business in Singapore.
Switzerland’s central bank announced on Sunday that UBS, the world’s largest wealth manager, will buy long-time rival Credit Suisse for three billion Swiss francs (RM14bil).
It will also assume up to US$5.4bil (RM24bil) in losses under the deal, which is expected to close by the end of 2023.
The takeover is likely to be a lengthy and complex process and will involve consequences such as job cuts while also bringing other opportunities, observers told The Straits Times.
A former senior executive of both banks said that full integration of the banks will probably extend beyond the end of 2023, given their huge sizes and differences in internal processes.
Professor Lawrence Loh, director of the National University of Singapore (NUS) Business School’s Centre for Governance and Sustainability, said: “In the UBS-Credit Suisse case, it is even more complicated due to the multi-product, multi-market nature of the business, which is made even more intricate as both banks operate across many regulatory jurisdictions.”
Mergers and acquisitions usually take place after many months of negotiations, noted Dr Aurobindo Ghosh, assistant professor of finance at Singapore Management University.
“However, in this case, the deal was hastily done and brokered. Some of the details, like the continuation of branches and banking departments at the two similar financial institutions, can take quite a while,” he added.
Associate professor of economics Jamus Lim of Essec Business School Asia-Pacific said the collapse of Credit Suisse will undoubtedly dent the overall vibrancy and diversity of the local financial landscape.
But he added that the rationalisation will ultimately strengthen the system, so long as the unwinding of Credit Suisse’s positions and settlement of trades occur in an orderly manner.
“Risks from contagion tend to be front-loaded, so as long as markets settle over the course of the next few weeks and no new failures reveal themselves, we should be able to ride through this period of heightened volatility,” said Lim.
UBS and Credit Suisse are among 30 global financial institutions that are deemed to be systemically important, meaning their failure could trigger a wider financial crisis, and they run large operations globally.
Singapore is home to UBS’ biggest regional office, which is situated in Dhoby Ghaut.
The wealth manager employs close to 3,500 staff here, and its Asia-Pacific global wealth management business had invested assets worth US$437bil (RM1.96 trillion) as of the end of 2022.
The Monetary Authority of Singapore said on Monday that UBS’ takeover of Credit Suisse is not expected to have an impact on the stability of Singapore’s banking system, with the latter continuing to operate in Singapore without interruption and its customers having access to their accounts.
The Straits Times understands that Credit Suisse no longer discloses figures on Asia-Pacific as a division, as well as country-specific breakdowns.
The bank’s latest annual report shows that it had total assets of 53.4 billion Swiss francs (RM257bil) in the region at the end of 2022, out of 531 billion Swiss francs (RM2.56 trillion) globally.
A Credit Suisse spokesman said the bank does not expect disruption to its client services. It added that its Asia Investment Conference in Hong Kong from March 21 to 23 will go ahead as planned.
Observers expect job cuts in the coming months, particularly for Credit Suisse’s investment banking business, which UBS chairman Colm Kelleher said his bank will wind down. The investment bank has thousands of employees worldwide.
The former UBS and Credit Suisse senior executive, who declined to be named, told The Straits Times: “Investment banking has always been known to be more capital-intensive. In this day and age, capital is important, and UBS will not change its capital-light strategy just because Credit Suisse is organised in a different manner.”
Morale is very low at Credit Suisse, he added, citing accounts by former colleagues that employees have “a big chunk of their deferred compensation wiped out”. There is definitely a human cost involved, he said.
This comes even as the global bank promised in an internal memo that bonuses and pay increases will still go through and that it does not expect to make adjustments to deferred award programmes as it tries to maintain “business as usual”.
“Some people’s retirement funds are in Credit Suisse shares – now that’s all gone, or at least a fraction of what they were before,” said the former executive, adding that employees might also find it tough to find new jobs as their own reputations could be tainted even if they were not involved in the bank’s woes.
The 167-year-old Swiss lender has found itself in a string of scandals over the years. The sell-off of its shares began in 2021, triggered by losses linked to the collapse of investment fund Archegos and Greensill Capital.
The bank announced last week that it had found “material weaknesses” in its financial reporting processes, which led to a fresh slump in shares.
But there are bright spots for Singapore’s broader wealth management scene as the marriage takes place.
“What happens now is that some of the other private banks might benefit – a lot of ultra-high net-worth individuals don’t like to have their risks in the same basket at the same bank,” said the former Credit Suisse and UBS executive.
Richard Bradshaw, managing director of executive search firm Ethos BeathChapman, noted that Credit Suisse had already started trimming its investment banking division months before the news of a merger.
“So it might be the case that only core members of Credit Suisse will partake in the merger, with no additional cuts from the Credit Suisse side post-merger.”
He added that the merger might boost the reputation of UBS’ private banking business.
“What we could see is perhaps the internal movement of employees from the investment bank to the private wealth business, given that these banks have been pushing for a one-stop solution for their clients.”
Bloomberg Intelligence Asian financials credit analyst Rena Kwok said UBS is likely to become a stronger wealth management powerhouse after the merger, which will support its growth ambitions in Asia.
However, it could see some outflows from clients who are uncomfortable with having large portfolios at both banks, which could in turn benefit more stable local players who have grown to be stiff competitors.
NUS’ Loh said entities with a local presence will stand to gain when it comes to wealth assets that have “compelling reasons to be managed in Singapore” – for example, if the owners reside here.
Phillip Securities Research analyst Glenn Thum said there is a likelihood Singapore will see an inflow of assets as high net-worth clients seek a more stable economy to place their funds. — The Straits Times/ANN
