There are clear advantages in wealth management, tougher questions elsewhere
By Matthew Thomas, Rebecca Feng and Weilun Soon
March 23, 2023 7:31 am ET
Executives at UBS UBS -0.94% Group AG, which until recently competed with rival Credit Suisse CS -1.23% Group AG to win business from Asia’s biggest companies and richest people, must now tackle the thorny question of how to combine the two banks in the region.
That is just one conundrum facing senior executives at the banking giant following its acquisition of Credit Suisse for $3.25 billion, an emergency deal orchestrated by the Swiss government. But it is a critical one for a bank that has long seen Asia as a key growth market, particularly for wealth management—where banks offer services to the ultrarich.
UBS Chairman Colm Kelleher and Chief Executive Ralph Hamers have called Asia a cornerstone of the bank’s strategy, in part because they say wealth in the region is growing faster than anywhere else in the world. UBS generated around $5.6 billion of revenue from Asia Pacific last year, including around $2.6 billion of revenue from its wealth-management division. It is pushing for more.
The obvious boost to UBS’s Asian business will come from the wealth- and asset-management clients it will gain from the acquisition, according to people familiar with the matter. Mr. Hamers said the smaller Swiss bank’s client base in Southeast Asia will complement UBS’s strength in Hong Kong, Singapore and mainland China.
The difficulty will come from bringing together two institutions that have often taken vastly different approaches to risk, the people said.
After UBS suffered huge losses during the global financial crisis, it took pains to become a safer, more conservative institution. Credit Suisse has often been more willing to take big risks, including using its balance sheet to win business and generate profits, according to current and former employees.
That has helped Credit Suisse win clients in Asia for years, even as the bank was suffering scandals elsewhere. Its assets under management in Asia Pacific grew to $238 billion in 2021 from around $164 billion in 2015.
“Credit Suisse had a completely different risk appetite to UBS, which meant they could be the go-to bank for some of the more aggressive clients,” said Dominique Jooris, former chief executive of Bank Pictet & Cie (Asia), a private bank.
“UBS might not be able to retain those clients, because they were coming to Credit Suisse for derivatives transactions or aggressive lending and that is probably going to go,” said Mr. Jooris, now the CEO of WMCockpit, a fintech company aimed at the wealth-management sector.
Credit Suisse’s approach to risk has occasionally backfired, including in the investment bank. The bank’s lead slot on the U.S.-listing of China’s Luckin Coffee Inc. turned from a bragging right to an embarrassment after Luckin admitted to fraud. But that risk appetite has also led to wins. Credit Suisse bankers proved particularly adept at winning business from Southeast Asian tycoons and Chinese tech founders, offering them both wealth-management and investment-banking services, according to rivals and former employees.
Credit Suisse didn’t break down its assets under management by region in its 2022 annual report, but its investment-banking-fee revenue in Southeast Asia was around $105 million last year, compared with the $24 million earned by UBS in the region, according to Dealogic. UBS is stronger in more developed markets: It made $217 million of fee revenue in Australia and New Zealand last year, compared with Credit Suisse’s $82 million.
After intense speculation about the financial health of Credit Suisse last year, the bank attempted to correct course. It announced a stark shift in strategy last October, telling investors it would reduce its exposure to risky assets, cut costs and spin off most of its investment bank into a separate entity. Credit Suisse said it would “create a simpler, more focused and more stable bank,” but the plan didn’t stem the pressure on the Swiss lender.
The planned spinoff of the investment bank has added further uncertainty to how UBS and Credit Suisse can be integrated. The spinoff, which would be branded with the old Credit Suisse First Boston name, was due to be run by veteran banker Michael Klein, and Credit Suisse was planning to take a majority stake in the firm. UBS’s executives are now reconsidering the idea.
Credit Suisse’s asset-management business is another positive for UBS executives, particularly the $115 billion fund-management joint venture it has with the Industrial & Commercial Bank of China Ltd., the country’s largest bank by assets. The Swiss bank owns a fifth of the joint venture.
ICBC Credit Suisse Asset Management (International) Co. is the largest mutual-fund joint venture between a Chinese and a foreign institution by assets, according to Wind data. UBS owns 49% of its own fund joint venture with state-owned SDIC Taikang Trust Co., which has $36 billion in assets.
UBS is also applying to set up its own fully owned mutual fund in the country. That will force UBS to make a choice, since Chinese regulations prohibit financial institutions—whether foreign or domestic—from holding stakes in more than two mutual-fund companies. The rules also limit them to owning a majority of only one mutual-fund operator.
UBS has warned investors that the acquisition of Credit Suisse may require approval from regulators outside Switzerland, although Mr. Jooris said that is unlikely to be a problem.
“Everybody will be breathing a sigh of relief that the accident-prone child has found a safe and happy foster home,” he said. “I don’t see any regulator putting their foot down.”
After the collapse in early 2021 of its longtime client Archegos Capital Management, which had borrowed billions from Credit Suisse, the bank took a $5.2 billion charge, according to its latest annual report.
The bank was also caught off guard when Greensill Capital imploded, which led to huge losses at supply-chain funds that had invested in Greensill’s loans through Credit Suisse. Credit Suisse has warned investors that resolving the problem could lead to a material loss.
UBS generated around $34.6 billion of revenue in 2022, making its Asian revenue around a sixth of the total. Credit Suisse brought in net revenue of around $1.8 billion in the region last year, compared with its worldwide revenue of $16.3 billion.
UBS and Credit Suisse employ around 23,400 people in Asia Pacific, according to UBS’s latest annual report and figures from Credit Suisse’s website. Credit Suisse employees, around a third of that total, were still going to work this week, attempting to carry on with business as usual despite fears over their jobs.
Some of the bank’s staff attended Credit Suisse’s Asian Investment Conference, which went ahead in Hong Kong this week despite the turmoil. The event had been marketed with the tagline: “Embracing Reality.”
Jing Yang contributed to this article.
Write to Matthew Thomas at matthew.thomas@wsj.com, Rebecca Feng at rebecca.feng@wsj.com and Weilun Soon at weilun.soon@wsj.com
https://www.wsj.com/articles/ubs-faces-tough-choices-as-it-weighs-up-credit-suisses-asian-business-dc881ae3
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