Moody`s changes its long-term outlook for UBS to negative

Rating agency Moody`s changed the outlook on long-term deposit and senior unsecured ratings of the Swiss bank UBS from stable to negative. This is reported on site agencies.

Moody’s changed its forecast after UBS announced on the acquisition of the second largest bank in Switzerland – Credit Suisse (CSG). The deal, which will see UBS pay for the asset with about $3 billion worth of its own shares, came about due to problems at Credit Suisse that were revealed last week. The bank ended 2022 with a loss of $8 billion, which was the worst result since 2008. In just three months, clients withdrew more than 100 billion Swiss francs from their accounts. The bank then reported “material deficiencies” in its financial statements, and the outflow accelerated to $10 billion a day.

The agency noted that the acquisition of Credit Suisse threatens UBS with significant financial, cultural and franchise-related integration difficulties. Among these, Moody’s highlights: the need to retain key CSG personnel for the duration of the transaction, the need to minimize the loss of duplicate clients in the Swiss banking and asset management business, the need to unify the cultures of two somewhat different organizations while at the same time ensuring that overall risk appetite and controls are maintained at levels determined by UBS.

At the same time, the agency notes that in the event of a successful completion of the transaction, the protection of creditors in UBS can maintain reliability. This will be helped by the bank’s solid capitalization, a strong international asset management franchise and a leading position in the Swiss banking sector. All these factors will help the bank continue to generate a stable income base in the face of restructuring, according to Moody`s.

After the news about the merger of the largest Swiss banks, the agency also changed the rating of UBS S&P Global Ratings. “We expect the integration and expected downsizing of a significant portion of Credit Suisse’s investment banking business to be subject to significant execution risk, given Credit Suisse’s size, complexity and risk profile,” S&P said in a statement.

The deal led to Credit Suisse losing 60% of its value at the opening of trading, dragging its buyer along with it. UBS also fell in price by about 15%. In addition to the direct participants in the transaction, securities of other large European banks, such as Societe Generale and Deutsche Bank, fell in price. The index, which reflects the state of affairs in the sector in Europe, falls by 3%.

Read more about the reaction of investors to the deal between UBS and Credit Suisse – in the material “Kommersant FM” “The deal brought to a panic”.

Erdni Kagaltynov