UBS Group is set to reduce the size of Credit Suisse Group’s investment bank in order to curb the losses incurred by its newly acquired rival, Bloomberg quoted UBS chairman Colm Kelleher as saying.
The move could terminate Credit Suisse’s plans to carve out portions of its investment bank under the brand of CS First Boston.
It comes after UBS agreed to buy Credit Suisse in a deal valued at CHF3bn ($3.2bn). The deal, which was reportedly not favoured by both the firms, is expected to rescue the troubled bank and avert a major financial crisis.
Announcing the deal at a press conference, Kelleher said: “Let me be very specific on this: UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture.
“We will be de-risking a lot of the tricky businesses that we are inheriting.”
Kelleher further noted that the merged investment banks of UBS and Credit Suisse will not include more than 25% of the total firm’s risk-weighted assets in future.
As part of the acquisition, UBS will absorb a portfolio of ‘difficult-to-assess illiquid assets, such as long-dated derivatives and swaps. For these assets, UBS brokered a deal to receive loss guarantee from the government of Switzerland.
Due to rapid pace at which the deal has been brokered, UBS was unable to carry out proper due diligence on the portfolio.
However, Credit Suisse is believed to have marked those correctly, according to Kelleher.
The bank is set to accept any first losses on closing the portfolio of up to CHF5bn, with the government providing an additional CHF9bn in the event of any possible losses.
Besides, Kelleher said that UBS has its own investment banking arm, without offering any insights on the group’s spin-off plans directly.