Following the completion of UBS's acquisition of Credit Suisse, rating firm DBRS Morningstar has affirmed the ratings for the combined company, but with a negative trend.
Rating agency DBRS Morningstar has affirmed the long-term issuer rating of UBS AG at AA (low) and that of UBS Group at A (high). While it withdrew the assessment for the holding company Credit Suisse Group, the long-term issuer rating for the operating company was maintained at AA (low).
The affirmation of UBS's ratings reflects expectations it can maintain its business momentum in a complex environment while taking into account the increased operational integration risks UBS faces as a result of acquiring Credit Suisse earlier this month.
Increased Integration Risks
The «Negative» trend «reflects the high degree of execution risks associated with the significant size of the acquisition at a time of elevated market uncertainty,» the agency said. For UBS, the main challenge will be restoring the underlying profitability of the Credit Suisse business.
Long-term ratings will return to «Stable» if the combined entities maintain their credit strength despite a likely lower capacity to generate earnings during the integration, and if it manages execution risks well.
Conversely, long-term ratings could face negative pressure if the combined business weakens or profitability declines significantly, or if significant integration issues arise.
No Major Investment Bank Growth
DBRS sees UBS maintaining and strengthening its leading position in global wealth management through the acquisition, with the same being true for its position as a leading Swiss bank.
On the other hand, UBS's investment bank isn't expected to grow significantly since the majority of Credit Suisse's market positions are likely to be transferred to a non-core unit.
Reputational Risk in Focus
The merged firm's capital position will remain strong, with funding and liquidity positions bolstered by a large deposit base and a strong global wealth management business.
UBS has an overall conservative risk profile reflecting the credit and market risk characteristics of its key businesses, particularly in wealth management and asset management, with solid asset quality. At the same time, Credit Suisse's credit risk profile isn't cause for concern, given similarly solid metrics.
The agency «will continue to monitor the Group’s reputational risks, including legacy issues,» noting that UBS is still subject to certain inherited investigations.
As previously reported, UBS has set aside $4 billion for litigation provisions related to Credit Suisse.
