Central Bank, antitrust regulator CADE greenlighted merger
The acquisition of Credit Suisse by UBS in Brazil is nearing completion. According to sources familiar with the process, the Central Bank has already expressed its support for the transaction, which is linked to the global deal between both Swiss banks.
The publication of the closing of the acquisition in the Daily Gazette still depends on “administrative steps on the part of the interested parties,” the monetary authority told Valor. After that, the Central Bank gives 90 days for the submission of a detailed plan for the merger.
At the end of April, antitrust regulator CADE had already greenlighted the deal in which UBS takes over the competitor’s business in the country without restrictions. The agency found overlaps in all areas of the two groups’ activities – fund management, asset management, corporate advisory, brokerage, investment distribution, and securities analysis – but none that would raise competition concerns.
A few adjustments are missing abroad, as the group revealed this week when it asked Swiss authorities for safeguards against losses related to the hasty purchase of Credit Suisse. UBS said the acquisition is expected to close in early June.
Based on these definitions, UBS will be able to begin an integration in Brazil that will precede by a few years its expansion plans in the country’s wealth management segment. The management team saw this as a underdeveloped business in the country considering the bank’s size.
It was an unplanned shortcut. After all, the marriage between UBS Group and Credit Suisse Group on a weekend in March was arranged by the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank. It was their way of avoiding a crisis of confidence that had befallen Credit Suisse after it had set aside multi-billion provisions for transactions that had proved disastrous in recent years, and of “preventing a further deterioration of the financial situation of the bank [CS] and its effects on the Swiss, European, and global financial markets,” as the banks described in the process analyzed by CADE.
Locally, representatives of the two groups have not yet spoken about the merger, but some peers in the capital and investment markets are raising hypotheses about how UBS will organize the incorporation of Credit Suisse and are looking for clues about how the competitive game will turn out.
Colm Kelleher — Foto: Stefan Wermuth/Bloomberg
One question mark when the deal was announced was what the investment banking division of Credit Suisse would look like, given UBS’s joint venture with Banco do Brasil in this field. The most likely scenario, according to a senior executive of the segment, is that the business generated there will migrate to UBS BB. On Wednesday, UBS chairman Colm Kelleher said that Credit Suisse’s investment bank was “out of control” and that it would be scaled back significantly after the acquisition, according to Reuters.
In investment banking, Credit Suisse has lost strength in recent years, after peaking in the mid-2000s and competing for the top spots in the rankings. It has regained some ground in the last 12 months. According to the Brazilian Financial and Capital Markets Association (Anbima), it ranked 20th in the structuring of fixed-income and hybrid instruments in April, up from 25th a year earlier. However, it ranked below less traditional capital markets competitors such as NuInvest and Inter. UBS BB ranked third in April, with almost 12% of the market, up three places in a year. In equities, with virtually no new offerings, Credit Suisse remains eighth, while UBS is seventh.
In wealth management, the trend is to consolidate managed portfolios and exclusive funds under UBS Wealth Management, which has been operating as a multi-family office (MFO) since the acquisition of Consensus in 2017. In this model, the revenue stream comes from paying a percentage of the client’s assets under management, rather than from distributing products. Credit Suisse’s team comes from a transactional culture – the MFO only became operational in 2020, and as of September last year it had 30 families with assets starting at R$250 million.
In local operations, Credit Suisse was one of the only foreigners to compete with the large financial conglomerates in private banking. It had the equivalent of $50 billion and some say that if offshore portfolios – which do not appear in local statistics – were included, it would be similar in size to UBS in managing the assets of Brazilian families.
Within the structure that became known as UBS Consensus, efforts were made to concentrate client advisement within the institution, in the logic that having 100% of a client’s portfolio would add more value than traditional private banking. With Credit Suisse, the group gains a more complete platform, focused exclusively on serving investors.
The executive of a wealth management firm points out that UBS is hiring advisors at a time when synergies with the base of CS bankers are not being exploited. He says that with the turmoil involving the bank globally, it has become difficult to attract senior professionals in the last 12 to 24 months. “How would they take the client who trusts them?” he asks. This source says he even sees room for UBS to bring in the more active trading profile and plug it in with offshore and MFO. Some see a potential culture clash. In parallel with adding people, the group is designing a retention plan and has hired headhunters in all regions, including Brazil.
Whatever the plan, execution is not trivial. One thing is the integration of Consensus, an investment boutique that at the time had R$29 billion in assets under management. Now, the challenge is to take over a local titan with global ramifications that had some independence from the parent company. “Wealth is the core of UBS worldwide, and if it is combined correctly, it will create a lot of value. It is a game of scale,” says one observer.
In Brazilian mutual funds alone, Credit Suisse lost R$27.8 billion from October until now, when the first sparks of the crisis began to spread. In April, it had assets of R$77.6 billion, according to Anbima.
J.P. Morgan’s research team in Europe estimated in a recent report that the acquisition would make UBS a powerhouse in wealth management, accounting for 60% of the group’s profit, with wealth management contributing more than $7 billion pre-tax. With the potential to add $150 billion in net new assets per year in the long run, it would be like building a Julius Baer every three years in terms of assets.
*Por Adriana Cotias, Larissa Garcia — São Paulo, Brasília
Source: Valor International