After Private Banking, Investment- and Corporate Banking are crumbling in Credit Suisse's Swiss business. By delaying a decision, UBS is pursuing a risky strategy.

At a recent town hall event with employees, UBS CEO Sergio Ermotti said that speed trumps precision when it comes to staff reduction at the combined entity. The statement could also apply to his actions since the forced merger of Switzerland's two largest banks in March.

Ermotti has been reconstituting his management team at breakneck speed, completing the official merger on June 12, and finalizing the guarantee agreement with the Swiss government. There were roadblocks to be sure, but those were overcome in a matter of days, not weeks or months.

All the more striking is UBS putting off until the end of summer to decide on the future of Credit Suisse's Swiss business. The official line is that UBS needs this time to weigh up its options, while in the meantime Ermotti's team is seemingly running out of time.

News Vacuum Leads to Speculation

In the news vacuum prevailing since the announcement of its plans for Switzerland, uncertainty has taken hold. With the abrupt departure of Andreas Gerber, the former head of Credit Suisse corporate banking, it reached a new level this week.

Serge Fehr, the former head of Swiss private banking, becomes the head of Lombard Odier's Swiss business in August. Since his move became public in March, departures among his former colleagues have mounted. It's not unreasonable to expect a second «Fehr Effect» at Credit Suisse. Stressed Balance Sheet?

Unlike in private banking, where more client advisors generally equal more assets under management, Credit Suisse front office staff are therefore often welcome. In the business with Swiss corporate clients and investment banking, things are likely to be different.

As market observers point out, it doesn't make sense for UBS to burden its balance sheet twice in the longer term with Credit Suisse's corporate loans. The combined bank will gradually try to unload some of the companies with expiring credit contracts, according to sources. Where there are fewer clients to serve, there's less need for support staff.

Bad Omen

The fact that Gerber is leaving is seen as a bad omen within Credit Suisse, as finews.com has learned. In the investment bank and corporate client business, where the staffing has mostly been stable, a flight response could soon take hold.

In the process, smaller domestic institutions could become a point of contact, and several cantonal banks are said to be interested in new corporate clients as well as in the bond issuance business.

In his town hall, Ermotti said UBS will naturally play a stronger role in the home market in all areas. Not only in terms of size but above all in terms of the range of services. How much Credit Suisse contributes to that are cards he's holding close to his chest.

There's a growing likelihood that some Credit Suisse bankers in corporate banking won't wait for the UBS boss to make his decision.

Still on Schedule

As media reports indicated in June, some 35,000 jobs could be eliminated at the combined bank. The first wave of layoffs would hit in July, followed by it two more rounds in the fall. It's estimated that up to 12,000 jobs face the axe in Switzerland.

If sought-after front-line staff leave of their own accord, opportunity costs for UBS also rise. Those around the bank insist that work towards a decision by summer's end is progressing on schedule. In contrast to Credit Suisse's trading, which doesn't fit UBS's strategy, considerations regarding Credit Suisse's Swiss business are far more complex.

The maxim of speed before precision should be replaced with getting it right the first time.

New Jobs in the Future

According to reports, the political component surrounding the loss of thousands of jobs would be a most welcome topic for federal elections in October but are only one facet to consider. Rather, it is a matter of clarifying in detail what advantages and disadvantages the chosen option would entail for all stakeholders of the combined bank.

UBS is giving itself more time to make a decision that'll set the course for the coming decades. It's also in line with Ermotti's plan where the takeover is only the first phase of the «equity story,» he told the town hall.

What to Understand

What he wants employees to understand is the platform that will continue to grow and create new jobs in the future.