UBS Group has ended an agreement with the Swiss government to cover losses the bank could incur from the rescue of Credit Suisse, a sign that the mammoth integration is on track and the stricken lender’s assets might be less troublesome than initially feared.
Switzerland’s biggest bank said on Friday it had voluntarily terminated the 9 billion Swiss franc ($10.3 billion) loss protection agreement with the Swiss government after stress-testing a portfolio of Credit Suisse non-core assets.
UBS also said it will terminate a liquidity backstop with the Swiss National Bank of up to 100 billion francs, according to the statement, adding that Credit Suisse has also fully repaid a 50 billion franc emergency liquidity assistance loan.
The support had helped facilitate the takeover brokered by the government in March as Credit Suisse hurtled toward bankruptcy. UBS had pushed for protection from hard-to-predict losses from a set of its former rival’s assets it plans to wind down or sell.
“This is a testimony to the strength of UBS,” chief executive Sergio Ermotti and chairman Colm Kelleher said in an internal memo to staff. “We can manage the overall costs and financial impact of the integration on our own.”
UBS shares rose 4.35 per cent in early trade in Zurich.
The decision offers reassurance on “the health of the Credit Suisse non-core portfolio", Citigroup analysts said in a note. “The early voluntary repayment could potentially also help in other matters, such as negotiating the retention of the Credit Suisse Swiss business.”
The fate of the Swiss bank has been widely watched as Swiss-based companies and politicians have voiced concerns over the market power that the combined bank would exercise. UBS plans to make a decision in the third quarter on whether it will fully integrate it with its own Swiss unit or seek another option such as spinning it off or listing it publicly.
Terminating the various agreements will also save UBS millions in fees going forward. The bank had paid 40 million Swiss francs for the establishment of the loan protection agreement, while Credit Suisse had paid risk premiums in relation to the liquidity assistance measures.
Under the terms of the loss protection agreement, UBS was to assume the first 5 billion francs of losses, with the government stepping up to take on the next 9 billion francs. The portfolio of assets covered primarily loans, derivatives, legacy assets and structured products from Credit Suisse’s non-core unit.
"Expected losses from acquired Credit Suisse assets may be less than feared, with UBS eliminating a 9 billion franc backstop provided by the Swiss government as part of the deal, which was set to follow the first 5 billion francs of losses taken by the acquirer related to a specific portfolio," said Alison Williams, a banking analyst at Bloomberg Intelligence.
"The move indicates UBS’ confidence that worst-case losses are manageable, following stress testing of related non-core assets. Termination may also help politically, providing flexibility for the sizable combined Swiss business, while also saving expected annual fees related to the backstop."
The government had previously said it and the bank’s “priority” was to minimise losses and avoid using the loss backstop as much as possible. Swiss taxpayers no longer bear any risk relating to the rescue of Credit Suisse, Finance Minister Karin Keller-Sutter said at press conference on Friday.
The Swiss National Bank said in a statement it welcomed the repayment of the liquidity assistance measures.
UBS is due to give further details on the integration plans on August 31 when it reports combined second-quarter earnings. It flagged on Friday that more announcements are likely at that point.
“There will be many more milestones to come, and we will share some of these with you when we report our second-quarter results,” Mr Ermotti and Mr Kelleher said in the internal memo.
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
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Transmission: 10-speed auto
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COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
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Sector: Water technology
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The specs: 2018 Nissan 370Z Nismo
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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MATCH INFO
Norwich 0
Watford 2 (Deulofeu 2', Gray 52')
Red card: Christian Kabasele (WatforD)
