Moody’s follows S&P in UBS ratings downgrade as concerns grow over Credit Suisse deal
Moody’s downgraded the outlook on UBS today, following a similar move by S&P over the weekend, after the Swiss banking giant’s acquisition of Credit Suisse.
The ratings agency said “the transaction poses significant financial, cultural and franchise related integration challenges” to UBS.
These challenges included the difficulty of maintaining key members of staff, the need to minimise the loss from overlapping clients and the need to unify the cultures of two “somewhat different organisations”.
However, Moody’s also noted that the acquisition has the potential in the longer term to “significantly enhance” the bank’s franchise in wealth management, Swiss banking and asset management.
Moody’s assessment followed many of the same lines that S&P took on UBS in a report published yesterday. The ratings agency also reduced its outlook on the bank to negative from stable.
It said this reflected “pressure on the group’s stand-alone creditworthiness linked to execution risk from the integration.”
S&P analysts highlighted risks of integrating Credit Suisse’s investment banking arm in particular.
“The integration and anticipated rundown of large parts of Credit Suisse’s investment banking activities will carry material execution risk given Credit Suisse’s size, complexity, and risk profile,” they wrote.
However, the ratings agency also suggested that the bank will likely “prudently execute” the integration and that emerging risks are likely to be limited effectively by “massive liquidity support” from the Swiss central bank.
UBS acquired Credit Suisse for a discount $3bn over the weekend in an emergency deal brokered by Swiss authorities.
Announcing the deal on Sunday, UBS chair Colm Kelleher said “UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture”.
In order to get the deal across the line the Swiss authorities have provided UBS with insurance in the form of an almost £8bn loss guarantee on a clearly defined part of Credit Suisse’s portfolio.