Rating agency Moody’s has downgraded the outlook for some UBS bank ratings, following the announced mega-merger with its struggling counterpart Credit Suisse.
Analysts have assessed the growth prospects inherent in this merger, but also the risks associated with heavy and complex integration.
In detail, Moody’s confirmed the ‘A3’ senior unsecured debt ratings, as well as ‘Baa3’ of the bank’s additional Tier 1 capital at the three keys. It also reiterated the ‘Aa2’ ratings for long-term deposit, ‘Aa3’ for senior long-term unsecured debt and ‘a3’ for intrinsic credit risk assessment of the main banking subsidiary UBS AG, detailed the agency on Tuesday in a statement.
The outlook for long-term and senior unsecured deposit ratings, however, has been changed to ‘negative’, from ‘stable’ previously.
Moody’s assessed the long-term growth potential resulting from the merger between the two Swiss banking giants, but also “the complexity, scope and time required for the integration” of Credit Suisse by UBS.
Analysts believe that this takeover has ‘the potential to significantly strengthen UBS’s business in wealth management, banking in Switzerland, asset management and, to a lesser extent, in investment banking. ‘. The merger is also expected to reduce operating costs by more than $8 billion.
The financial support provided by the Confederation, the Swiss National Bank and the regulator Finma are also seen as positive.
Financial and cultural risks
This forced marriage will not go smoothly, however, warned Moody’s. The transaction thus conceals ‘a high risk at the financial, cultural and business integration levels’. The bank with the three keys must therefore be able to retain key employees of Credit Suisse, avoid losing clients in wealth management and Swiss activities and bring together two corporate cultures.
Credit Suisse’s credit ratings are being reviewed, Moody’s added. The two-veiled bank’s senior unsecured debt rating is currently at ‘Baa2’.
Sunday evening, following a weekend of negotiations, the Confederation announced the takeover of Credit Suisse, tottering following many setbacks and heavy losses, by UBS for 3 billion francs. The State granted a guarantee of 9 billion francs to UBS in order to reduce the risks incurred by the latter.
The two banking groups, which are of systemic importance for the financial system, also have ‘unrestricted access to the facilities offered by the SNB’. They can obtain aid in the form of liquidity up to a total of 100 billion francs. The SNB may also grant Credit Suisse aid of up to 100 billion francs in the form of a loan covered by a guarantee from the Confederation.
/ATS