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Repurchased UBS Shares Used To Help Finance Credit Suisse Takeover

Tom Burroughes Group Editor 19 April 2023

Repurchased UBS Shares Used To Help Finance Credit Suisse Takeover

Switzerland's largest bank – and the world's largest wealth manager – is continuing to get its finances in a row to execute its takeover of rival Credit Suisse. The deal, brokered by the Swiss government, is still causing ripples. A former top UBS executive is reportedly in talks with the firm about a return.

UBS, which is in the process of buying stricken rival Credit Suisse, yesterday said it will use some shares it bought back last year to finance the deal. The Swiss regulator has approved a change to its buyback move.

The banking group had repurchased 298,537,950 shares under a programme that it began a year ago. In a statement issued via the Swiss Takeover Board, UBS said it needed more than 178 million of the UBS shares to complete the merger. Zurich-listed UBS said it did not want to issue new shares for the $3 billion deal it agreed last month, and which was carried out without a request for shareholder approval.

The Swiss federal government and country’s central bank helped support the transaction.

As reports have noted, a $5 billion buyback announced this year had already been paused because of the complex process of integrating Credit Suisse. 

The transaction is expected to see thousands of jobs shed. Former UBS chief executive from 2009 to 2020, Sergio Ermotti, has been reappointed to guide the process.

According to Bloomberg, UBS has held talks with veteran Tom Naratil about returning to the bank. It has also tapped strategy consultant Oliver Wyman for help on the integration, reconnecting Ermotti with former advisor Huw van Steenis, the news service said.

One of the controversial elements of the takeover, besides leaving Switzerland with only one universal bank, is that holders of Additional Tier 1 bonds from Credit Suisse, a form of high-risk “buffer capital,” have been wiped out – by about SFr16 billion ($17.2 billion). Large investment houses such as PIMCO and Invesco have been hit, reports said.

Reports say lawsuits from disgruntled investors are in the works – investors in Singapore, for example, including individuals and family offices, are looking to sue the Swiss government. What has particularly angered investors is that AT1 bondholders have been subordinated to equity holders. Normally, debt is senior to equity.

The demise of Credit Suisse, which has a history dating back 167 years, comes after a string of scandals and missteps. In the final quarter of 2022 there was net asset outflow of SFr110 billion, translating into an outflow for all of 2022 of SFr123.2 billion, against a net new money inflow of SFr30.9 billion in 2021. 

Credit Suisse’s demise has hit the reputation of Switzerland as a financial centre – explaining why the country’s government was keen for UBS to buy it and stabilise volatile markets. In the US, markets have also been on edge since the collapse of Silicon Valley Bank and Signature Bank

Today, UBS said in a statement that it also intends to redeem the total outstanding amount of SFr400 million 0.62 per cent fixed-rate senior notes on 18 May. The bank issued the notes on 18 May 2017 and listed on Switzerland’s SIX Exchange.

See this editorial commentary on where the Credit Suisse story leaves the wider Swiss banking and financial services industry.

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