UBS chairman Colm Kelleher said the initial integration of Credit Suisse had gone almost too smoothly, which made him, as a former bank finance director, “worried” about the tricky next stages of the process.
“So far we have overdelivered. The easy part is almost getting rid of compensation costs. The integration of control functions, the legal entities and IT is more tricky. 2024 will be the first year when we won’t be getting rid of easy costs,” he told a Financial Times banking conference.
A year ago UBS hired Kelleher’s former employer Morgan Stanley to advise on options should Credit Suisse, which at that stage was suffering deposit outflows, need to be rescued. Kelleher said at that stage he did not think an acquisition by its biggest competitor was going to be the outcome.
“Just because you are getting ready doesn’t mean it’s going to happen. Never had two G-SIFIs [global systemically important financial institutions] come together before and Switzerland always was a two-bank solution,” he said at the FT Global Banking Summit.
That changed in March after Silicon Valley Bank collapsed, prompting concerns about weaker banks globally. The options for the Swiss National Bank then were a UBS rescue or a resolution of Credit Suisse.
“A resolution was possible but it would have been messy,” he said. “It would have been the right thing but it would not have been good for the financial system.”
Most of the decisions at that point were being made by Swiss authorities but Kelleher said he had a fiduciary duty to ensure the best outcome for UBS shareholders and other stakeholders. He reiterated that it was a liquidity and business model viability issue rather than one about concerns over capital adequacy.
“It was not a capital issue. So the Basel III proposals are fighting yesterday’s war,” he said, pushing back against plans to increase banks' capital requirements. Looking ahead, he said central banks need to be “more adept” at providing liquidity.
On the asset side of the balance sheet he said banks were facing fewer concerns in the current downturn since many commercial real estate loans had been originated from shadow banks or the private sector. “This means we are losing control of the measurement of risk,” he said.
Kelleher said more focus should be on how banks are managed and governed, with more accountability required for banking executives and board members. He declined to comment on the ongoing investigations by Swiss regulator Finma and the parliamentary inquiry into Credit Suisse's collapse.
Part of the inquiry focuses on the decision to write down the bank’s Additional Tier 1 instruments. UBS recently issued AT1s and Kelleher said more were likely in the coming year, but the decision was up to chief executive Sergio Ermotti.
Kelleher said he had “cultivated” the idea with Ermotti for five years that he could come back if UBS was ever in a position to takeover Credit Suisse. “Switzerland is very lucky to get Sergio to come back. It saved ourselves a lot of time,” he said.
A lot of focus will be on developing UBS’s US wealth management business to position itself as the biggest global manager. Kelleher had experience of this at Morgan Stanley when it bought and integrated a string of businesses to become one of the largest US wealth managers.
Kelleher had at one stage been suggested as a successor to the US bank's longstanding chief executive James Gorman. Ted Pick has since been nominated as his replacement.
“James did a phenomenal job in developing the succession. It was a bloodless coup, which is rare on Wall Street,” he said. “I would love to get to that stage in the future when UBS can do a similar succession.”
The focus at present is on integrating Credit Suisse into UBS. “The single biggest worry was that we might have cultural contamination from Credit Suisse into UBS. We needed to put UBS culture in it [Credit Suisse’s investment bank],” said Kelleher.