Ratings agency Moody’s cut its outlook on UBS debt to ‘negative’ on Tuesday following its acquisition of rival Credit Suisse.
Moody’s affirmed UBS’ current credit ratings, but downgraded the outlook on its long-term deposit and senior unsecured ratings to ‘negative’ from ‘stable’.
The ratings agency said: “The action balances on the one hand the advantageous financial terms in terms of liquidity and capital together with the long-term potential for franchise enhancement, and on the other hand the complexity, extent and duration of the integration.”
Moody’s said that despite the eventual franchise benefits, the transaction poses “significant financial, cultural and franchise related integration challenges for UBS”.
These include: the need to retain key Credit Suisse personnel while the transaction is underway; the need to minimise the loss of overlapping clients in its Swiss banking and wealth management businesses; and the need to unify the cultures of two somewhat different organisations while ensuring that overall risk appetite and controls are both enhanced and or maintained at levels defined by UBS.
On Monday, Standard & Poor’s downgraded its outlook on UBS to ‘negative’ from ‘stable’ on the back of the Credit Suisse takeover. It pointed to “material” execution risk in the integration of CS into UBS, given the size and weaker credit profile of CS and particularly the complexity in winding down a large part of CS’ investment banking operations.
“This could mean a weakening of the combined group’s competitive position or underperformance against its financial targets because of sizeable restructuring or litigation costs, pressure on revenue capacity, or setbacks in realising cost savings,” S&P said.
“In our base case, we already anticipate client churn at the combined entity, particularly in wealth management and Swiss banking, where both entities have significant client overlaps.”
