UBS is having difficulties digesting assimilating Credit Suisse's corporate banking sector. In addition to the planned reduction of unwelcome credit risks, the differing DNAs of the two banks also play a role. Even major blue-chip companies like ABB are turning their backs on UBS.

UBS is known as a potent private bank with strengths in wealth management, and Credit Suisse as a declared as an entrepreneur's bank; the two internationally active giants have long upheld an implicit division of labor in the Swiss financial sector.

Credit Suisse was the undisputed leader in corporate client business.

It was expected that the forced takeover of CS by UBS in a former core area of Credit Suisse would not proceed without noise, which has already been addressed by finews.ch.

Headlines in «Blick»

The topic has even reached the tabloids. «Blick» recently headlined: «Fat interest surcharges: UBS irritates Swiss corporate clients.»

UBS itself wrote somewhat cryptically in its media release published yesterday about the quarterly report on «outflows in corporate client business with low liquidity value». However, these have been largely compensated by «inflows in private client business» in the «Corporate & Personal Banking» area, keeping the deposit balances in this business area more or less constant.

The explanation for the current events in UBS's corporate client business is multifaceted.

Reduction of dubious credits

An uncomplicated aspect for the bank is that UBS is in the process of shedding dubious credit risks. It's an open secret in corporate finance circles that CS liked to whip out the large checkbook in the hope of opening doors to other, more margin-rich services through hefty corporate loans with sometimes mediocre «Due Diligence».

UBS is now catching up on «Due Diligence» and canceling corporate loans it deems too risky. Also, additionally, the adjustment of some interest rates can be seen in the light of a financially motivated cleanup at the current interest level.

1 + 1 Is Not Always 2

A second aspect of the explanation concerns the logic of the forced merger, also with regard to equity capital: Many companies had credit positions at both Credit Suisse and UBS. These are now suddenly aggregated in the same bank balance sheet. But the two former business cases do not necessarily aggregate one-to-one from the perspective of the merged bank.

This is the root of the concern among the Swiss economy about a systematically worse debt capital situation following the CS takeover by UBS. With triple-digit million contributions, the circle of possible banks is now small.

Companies fortunate enough may replace a credit tranche at a major cantonal bank or similar. However, there's no guarantee that this will succeed.

ABB Departed

The higher equity capital requirements threatened by politics on UBS will likely exacerbate this problem.

The third aspect, and here it becomes uncomfortable for UBS, is that so far it has apparently failed to integrate the DNA of Credit Suisse as an entrepreneur's bank. Customer advisors from corporate business and profitable corporate clients are leaving the bank, switching to other institutions that emphasize corporate banking more than UBS.

This benefits, for example, the Swiss branches of BNP Paribas and Deutsche Bank, but depending on the customer segment and business, also international players like the major American banks or ING-DiBa.

From UBS's perspective, this unwelcome exodus also impacts its large customers. As finews.ch has learned, several Swiss blue chips have turned their backs on UBS in recent months. For example, the iconic ABB recently decided to withdraw the cash management mandate. The beneficiary in this case is Deutsche Bank, which has won the contract.

The developments over the next few months will show whether UBS seriously intends to take on the legacy of CS in terms of corporate clients.