A Year After Credit Suisse’s Fall, UBS’s Path Is Lined With Temptation

livemint.com:

Those who win the lottery often spend the money unwisely. This is the risk UBS needs to keep in mind on the anniversary of its Credit Suisse windfall. A year ago Tuesday, UBS said it would buy its embattled rival under the auspices of Swiss regulators, who wanted to end a banking panic.

UBS ended up paying $3.6 billion in stock for a bank with an estimated tangible book value of $33 billion—even after write-downs, expected litigation costs and accounting adjustments. The odd skeleton still lurking in the closet probably won’t stop this being remembered as the deal of the decade. Shares in UBS are up 64% since.

But one big question lingers: How will the merger change UBS? After all, the lender already had a strategy that the market liked: a focus on wealth management. Investors see this business as the holy grail in today’s regulatory environment. It requires little capital to generate high returns, and the fees tend to be less volatile than investment-banking income.

Morgan Stanley has become the highest-valued major bank in the world because 48% of its 2023 revenues came from wealth management. UBS can boast an even higher figure: 52%. This strength comes from adversity in the global financial crisis, when it needed to be bailed out after daredevil efforts to expand investment-banking operations in the U.S.

left it exposed to subprime real estate. Humbled, the bank returned to asset gathering, gearing its investment bank mostly toward fulfilling the needs of wealthy clients. It had shrunk to account for only about a quarter of company revenue before the merger.