Why UBS is Imposing Tough Restrictions on Credit Suisse Bankers as They Prepare for the Takeover
UBS is preparing to take over the ailing Credit Suisse on Monday, and as part of the merger, UBS will impose tough restrictions on Credit Suisse bankers. These restrictions will include banning new clients from high-risk countries and complex financial products, among others. UBS executives compiled nearly two dozen “red lines” that would ban Credit Suisse staff from certain assets from the very first day the two banks are merged. The list of restrictions covers eleven financial risks and twelve non-financial risks, and they are designed to de-risk the transaction to save Credit Suisse from bankruptcy.
Restrictions on Who the Credit Suisse Bankers Can Work With
Prohibited activities include taking on clients from countries such as Libya, Russia, Sudan, and Venezuela, and launching new products without the approval of UBS executives. Ukrainian politicians and state-owned enterprises will also be blocked to prevent potential money laundering. Credit Suisse bankers are also prohibited from acquiring new clients from high-risk countries such as Afghanistan, Albania, Belarus, Burkina Faso, Democratic Republic of Congo, El Salvador, Eritrea, Ethiopia, Guinea, Haiti, Iraq, Kosovo, Kyrgyzstan, Libya, Moldova, Myanmar, Nicaragua, Palestine, Russia, South Sudan, Sri Lanka, Sudan, Tajikistan, Turkmenistan, Uzbekistan, Venezuela, Yemen, and Zimbabwe.
Restrictions on What Credit Suisse Bankers Can Do
Credit Suisse bankers are also prohibited from trading a range of arcane financial products, including Korean derivatives and certain quantitative index options. In 2006, Credit Suisse lost $120 million on Korean derivatives, leading to a reorganization of the unit’s management team. Credit Suisse employees must also ask UBS executives for permission to make loans secured by assets such as yachts, ships, and real estate worth more than $60 million. As banker to some of the richest people in the world, Credit Suisse has long provided loans to finance the purchase of private jets by billionaires, while also engaging in yacht financing. Credit Suisse asked hedge funds and other investors to destroy documents relating to the yachts and private jets of its wealthiest clients following revelations in the Financial Times of a securitization deal involving loans made to oligarchs that were subsequently fined. Credit Suisse’s Swiss bank staff must seek permission from UBS to make loans to borrowers outside the country and for foreign properties.
UBS Executives’ Concerns
Despite Credit Suisse’s final years as an independent company being marked by a series of scandals and crises, they have traditionally been much more willing to accept risky clients and offer them high-risk products. Credit Suisse bankers are also more willing to take on clients from high-risk countries, and that is a matter of concern for UBS executives. To limit the risk of money laundering, bribery, and corruption, Credit Suisse bankers are not allowed to accept new clients from certain high-risk countries. Additionally, they are prohibited from trading certain products and lending money for high-value assets without prior permission. Credit Suisse bankers are also required to seek permission from UBS executives to make loans outside of the country or for foreign properties.
The Merger
The merging of UBS and Credit Suisse has been orchestrated by Swiss authorities, who three months ago made the decision to save Credit Suisse from bankruptcy. UBS executives compiled a list of restrictions that would ban Credit Suisse staff of various assets from the first day the two banks are merged. The bans, written by UBS’s compliance department, are designed to de-risk the transaction to save Credit Suisse from bankruptcy. UBS extension concluded an agreement with the Swiss government on Wednesday, providing the bank with up to 9 billion francs ($10 billion) to protect it from losses in the bailout. The government assistance would take effect after UBS covers the first CHF5 billion of losses. The loss protection agreement was the last hurdle for UBS to overcome before completing the acquisition.
Summary
UBS is imposing strict restrictions on Credit Suisse bankers as they prepare for the takeover. These restrictions include banning new clients from high-risk countries and complex financial products, among others. Credit Suisse bankers are also not allowed to accept new clients from certain high-risk countries and are prohibited from trading certain products and lending money for high-value assets without prior permission. These restrictions are designed to de-risk the transaction to save Credit Suisse from bankruptcy. The merging of UBS and Credit Suisse has been orchestrated by Swiss authorities, and UBS executives compiled a list of restrictions that would ban Credit Suisse staff of various assets from the first day the two banks are merged. UBS concluded an agreement with the Swiss government on Wednesday, providing the bank with up to 9 billion francs ($10 billion) to protect it from losses in the bailout.
Additional Piece
Bankruptcy is one of the worst things that can happen to a bank, and it is a clear indication that they have not been managing their finances properly. When Credit Suisse turned to Swiss authorities for bailouts after a series of scandals, it was a wake-up call to the banking industry and the impact of mismanagement of banks’ finance. UBS’s move to impose strict restrictions on Credit Suisse bankers ahead of the merger is a clear indication of bankers’ need to be vigilant and maintain proper financial management. If Credit Suisse had done this, they would not be in the mess they are in.
With the financial industry being as competitive as it is, banks are always looking for ways to outdo each other, leading to risky ventures and investments. However, the UBS- Credit Suisse merger proves that banks have to put the well-being of customers and the bank ahead of profits. If a bank creates a reputation for itself as being risky and not diligent in managing its finances, it will be hard to get investors and customers, which is why it is essential to ensure that bad financial management never happens in the first place.
Conclusion
The UBS- Credit Suisse merger and the strict restrictions being imposed on Credit Suisse bankers show that having good financial management is critical to every bank’s success. Failure to maintain proper financial management results in scandal, bankruptcy, and, ultimately, collapse. Therefore, banks should focus on developing and implementing strategies to avoid such outcomes. The banking industry needs to work toward creating a financially healthy industry that infuses trust between institutions and customers, building a strong financial sector.
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UBS will impose tough restrictions on Credit Suisse bankers, including banning new clients from high-risk countries and complex financial products as it prepares to take over its ailing rival as early as Monday.
UBS extension executives have compiled a list of nearly two dozen “red lines” they ban Credit Suisse staff of a variety of assets from the first day the two banks are merged, according to people familiar with the measures.
Prohibited activities include taking on clients from countries such as Libya, Russia, Sudan and Venezuela and launching new products without the approval of UBS executives.
Ukrainian politicians and state-owned enterprises will also be blocked to prevent potential money laundering
“We are concerned about ‘cultural contamination,'” UBS chairman Colm Kelleher said last month regarding the Credit Suisse staffing. “We will have an incredibly high standard for who we bring to UBS.”
The bans, written by UBS’s compliance department, are designed to de-risk the transaction, which was orchestrated by Swiss authorities three months ago to save Credit Suisse from bankruptcy.
UBS executives fear taking on a bank that has traditionally been much more willing to accept risky clients and offer them high-risk products. Credit Suisse’s final years as an independent company were marked by a series of scandals and crises, which an internal relationship said they were the result of his “apathetic attitude to risk”.
UBS extension concluded an agreement with the Swiss government on Wednesday providing the bank with up to 9 billion francs ($10 billion) to protect it from losses in the bailout. The government assistance would take effect after UBS covers the first CHF5 billion of losses.
The loss protection agreement was the last hurdle for UBS to overcome before completing the acquisition.
The list of restrictions – which UBS executives have called “red lines” – covers 11 financial risks and 12 non-financial risks.
While many of the risks are operational (affecting issues such as the distribution of research and the use of offices), other decrees relate more directly to areas of Credit Suisse’s business.
Under the rules, Credit Suisse bankers are barred from trading a range of arcane financial products, including Korean derivatives and certain quantitative index options.
In 2006, Credit Suisse lost $120 million on Korean derivatives, leading to a reorganization of the unit’s management team. But the bank continued to operate on the market.
Credit Suisse employees must also ask UBS executives for permission to make loans secured by assets such as yachts, ships and real estate worth more than $60 million.
As banker to some of the richest people in the world, Credit Suisse has long provided loans to finance the purchase of private jets by billionaires, while also engaging in yacht financing.
Credit Suisse asked hedge funds and other investors last year destroy documents relating to the yachts and private jets of its wealthiest clients following revelations in the Financial Times of a securitization deal involving loans made to oligarchs that were subsequently fined.
Credit Suisse’s Swiss bank staff must seek permission from UBS to make loans to borrowers outside the country and for foreign properties.
In order to limit the risk of money laundering, bribery and corruption, Credit Suisse bankers are also prohibited from acquiring new clients from a number of high-risk countries. These include Afghanistan, Albania, Belarus, Burkina Faso, Democratic Republic of Congo, El Salvador, Eritrea, Ethiopia, Guinea, Haiti, Iraq, Kosovo, Kyrgyzstan, Libya, Moldova, Myanmar, Nicaragua, Palestine, Russia, South Sudan, Sri Lanka , Sudan, Tajikistan, Turkmenistan, Uzbekistan, Venezuela, Yemen and Zimbabwe.
Credit Suisse staff were sent a company-wide memo on Thursday, telling them to expect new “red lines” on the day the deal closed, though details of the rules were not included.
UBS and Credit Suisse declined to comment on the rules.
Separately, Swiss lawmakers on Thursday voted to authorize a special parliamentary commission of inquiry into the Credit Suisse crash.
https://www.ft.com/content/dcadb6dc-482f-4a76-9db8-9bcbb337c40f
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