Foreign. On Sunday March 19th, the President of Switzerland hosted a press conference with the Chairman of UBS and Credit Suisse to announce the merger of the two banks that his government had rushed to arrange before markets opened. On Monday, the Swiss government invoked emergency powers to merge the two Banks without shareholder votes from either side. You can think of this as a financial equivalent of Martial Law founded in 1856.

Curtis Suites has been one of Europe's Most well-respected financial institutions. The company's previously proud history has become tarnished in recent years after repeated scandals and risk management failures which have caused this market cap to decline from a peak of 80 billion dollars in 2008 to around 9 billion dollars by the beginning of 2023.. In March of this year, banking failures in the U.S cause a confidence crisis in the global banking industry. This caused a bank run at Credit Suites with depositors withdrawing their funds hand over fist.

With their cash position deteriorating rapidly, the once proud Swiss institution was forced to accept a humiliating deal to be acquired by their arch rival UBS for the equivalent of 3.2 billion dollars. This situation has been a complete catastrophe for Credit Suisse's shareholders, as this represents a 60 discount to the Stock's trading price as of the previous Friday and a more than 90 discount to the bank's tangible Book value. In addition to buying their rival for such a discount, the Swiss Central Bank is also giving UBS a 100 billion Franc loan to help them meet the liquidity needs of their new combined entity. While this deal was a disaster for Credit Suisse, it could shape up to be the deal of this entry for UBS a merger between the two firms would never have been possible in normal times.

Due to Anti-Trust concerns with this deal, they'll become a near Monopoly within the domestic Swiss market and become one of the largest wealth managers in the world with over 5 trillion dollars of invested assets. And not only do they not have any regulatory pushback, the Central bank is supporting this deal with a 100 billion Franc subsidized loan. In this video, we'll take a look at how UBS stands to benefit tremendously from the current banking crisis and what this means for the Global Financial system. In October of 2022, Saudi National Bank the largest bank in Saudi Arabia bought a 10 staking Credit Suisse for 1.5 billion dollars.

With the disastrous UBS merger, their investment is now worth just 300 million dollars, making it a near total loss. The only thing worse than losing one billion dollars in five months is buying a brand new pair of shoes and stepping in a muddy puddle that ruins them on your first day. But this is an issue you won't have to worry about with today's sponsor, Vessi, a company that makes stylish, functional, multi-purpose and most importantly waterproof shoes. This is proprietary Dimatex technology is 100 waterproof not water resistant to make sure they lived up to what they advertised.

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You can use the URL Betsy.com WSM to get 15 off any shoe. Styles They offer all of them being 100 waterproof. Headquartered in Xerox Switzerland UBS is a global Commercial Bank That, in a lot of ways is very similar to Credit Suisse. In fact, the two Banks headquarters are located right across the street from each other.

They operate in the same four segments: Wealth Management, Personal and Corporate Banking, Asset Management, and Investment Banking Credit Suisse's Swiss bank segment is roughly analogous to Ubs's personal and corporate banking segments. For both Chris Swiss and UBS, Wealth Management is their most important segment. This is because Switzerland's banking secrecy laws makes it an ideal place for oligarchs and other wealthy people to store and manage their money without drawing scrutiny. For example, say that you're a rich businessman and you made your fortune in a corrupt country.

You might want to move your money out of your home country to avoid government officials expropriating it from you. You'll need to employ the services of a wealth manager to help you set up various shell companies to own properties, yachts, and other real assets all around the world that can't easily be seized for more than a century. Switzerland has been the place to go for these types of services, with credit Suites and UBS emerging as a de facto duopoly in this industry. They can also help you with more mundane services like tax planning Estate Planning and money management.

Given their similar business mix, the two bank's share prices used to move almost in lockstep with each other. Whatever developments that happen in the investment banking industry would affect the two Banks almost identically, but their share prices started to diverge significantly in 2021.. the reason for this Divergence were two high-profile disasters that Chris was involved in the Green Seal scandal in the Archangos collapse. If you want to learn more about Credit Suisse's scandals, you can check out these two videos that we've made about them: Link in the description below.

Because of these scandals, Credit Suisse had 125 billion dollars of net outflows from their wealth management clients, while UBS had 60 billion dollars of net inflows. While UBS has had its share of scandals, they've been far less frequent and far less severe than those at Credit. Suites for example, UBS also lent money to Argagos, but only ended up losing 800 million dollars from the collab apps compared to Chris which is 4.7 billion. Most analysts agree that UBS has a more conservative culture with better risk management controls.

Crab Squeeze was more aggressive in trying to make as much money as possible, which led them to cutting corners and making ethically questionable business decisions. One of the major challenges faced by Chris Swiss in recent years was the high turnover of its senior leadership team. During the five-year period from 2015 to 2020, the bank was under the leadership of Tejan Viom, who was tasked with implementing a significant restructuring plan aimed at improving profitability and reducing costs. However, in 2018, the head of Critic Swiss's wealth management division Iqbal Khan left the bank to take up a new position at UBS This perceived betrayal apparently infuriated Tian Fearing that Khan would take some of Credit Suisse's valuable clients with him, Theon made the controversial decision to hire private investigators to spy on Kong.

The legality of this action is subject to debates. But ultimately led to Tian's resignation in disgrace after the Scandal was on covered. This episode not only exposed the freewheeling culture of Credit Suisse but also revealed the intense rivalry between the two largest Swiss banks because they served the same markets with the same Services Credit Suisse and UBS compete for the same clients and hire from the same pool of Swiss Bankers This creates constant competitive tension between them. of course.

Now, the two banks have merged into one, this competitive tension has been completely ameliorated and Ubs's favor good. UPS Paid 3 billion francs to acquire Credit Suisse in an all-stock transaction. Given that Ubs's market cap is about 56 billion francs, this purchase price is minuscule. So what will the combined company look like in 2022? UPS did pretty well, making 34 billion dollars of Revenue, which was roughly flat versus the prior year.

After subtracting operating expenses, they made almost 10 billion dollars of operating profit. Credit Suisse's financials were a different story. They made 16 billion dollars of Revenue, which represents an almost 30 percent decline from the prior year. This was due to declining revenues in their Investment Banking and wealth management divisions.

as clients withdrew their money. The sharp decline in Revenue led to a 3.5 billion operating loss. However, the Credit Suisse loss includes almost 2 billion dollars of litigation and restructuring expenses. If you adjust for these, their operating loss would have been 1.5 billion dollars.

It's possible that there will be more litigation expenses down the road, but once UBS takes control and implements stricter internal controls, these expenses should decrease substantially, if not altogether. Also, before 2021, credit Suites was highly profitable. They've just come under a great deal of pressure over the past two years. Credit Suisse has a huge network of wealth advisors who have close relationships with high net worth clients around the world.

These clients left the bank in droves because they feared for insolvency. Now that Chris Whis has Ubs's balance sheet and risk management team backing it up, a lot of them will come back and we know how important client relationships are from the 2018 spying scandal. But the ability to lure back wealth management clients may not even be the most lucrative part of the merger according to UBS. They expect to reduce 8 billion dollars of costs over the coming years.

Credit Suisse Had already planned to lay off 9000 staff as part of its restructuring last year. These layoffs will accelerate as a result of the merger. Whenever Two companies merge There is almost always some room to lay off redundant workers who have overlapping responsibilities. For example, both Banks employed thousands of sales people who reach out to prospective clients.

It wouldn't be uncommon for a high net worth individual to be contacted by both the UBS and Credit Suisse salesperson. Now, the combined Bank just has to send out one salesperson to each prospective client, so the total number of sales people needed will be lower. In addition to laying off redundant workers. UBS Plants are dramatically scaled down Chris's investment making operations.

they'll reduce investment making Revenue But given that this division was losing money anyway, the benefit of axing the highly paid investment bankers should outweigh the revenue decline. Another benefit of mass layoffs is that you can selectively choose to keep only the best performing employees and the ones that remain will be hyper motivated to increase their productivity to avoid being laid off themselves. The final benefit of the merger will be its anti-competitive nature within the domestic Swiss market. The combined density will be the largest bank in Switzerland by far, giving it tremendous Market power.

That's why such a merger would never have been allowed in normal times. Less composition means the combined Bank can offer lower savings rates on deposits and higher interest rates on its loans. By using some reasonable assumptions, we can see how this deal has the potential to be massively beneficial to UBS. We start off with Ubs's Standalone 2022 operating profit of 9.6 billion dollars.

We subtract the 3.5 billion dollar Standalone loss from Credit Suisse We add Back 2 billion dollars of litigation in restructuring expenses which are non-recurring We add 8 billion dollars of Cost Cuts We add one billion dollars from some of Chris Swiss's wealth management clients coming back. Credit Suisse's wealth management profits declined by more than two billion dollars in 2022, so less than half of them will have to come back to achieve this. Target And finally, we subtract 2 billion dollars of revenue from the investment banking division, which UBS would be scaling down. All this together takes Ubs's operating profit up to 15 billion dollars, a 50 increase from what they had as a standalone company.

Of course, this will take a few years to achieve and there will be significant restructuring and employee Severance costs in between. But it's pretty easy to see how UBS got a steal in buying credit Suites for just three billion dollars. In the aftermath of the 2008 Global financial crisis, the concept of too big to fail has become a major concern. Governments had to intervene and put taxpayers money at risk to bail out failing Banks and insurance companies.

With the recent acquisition of Credit Suisse by UBS, the new entity is now even larger and more complex than before, making it a prime example of a bank that is too big to fail. While the chances of UBS going bankrupt in the foreseeable future seem remote, if you go back just two years, you could have said the same thing about Credit Suisse Switzerland As one of the world's wealthiest, Nations has built its economic success on its dominance in the global Finance industry. With UBS now being the only major Bank in the country, its collapse would have catastrophic consequences that Switzerland may never recover from. Ubs's acquisition of Credit Suisse underscores the fact that UBS enjoys implicit government support even in the absence of an explicit guarantee.

This guarantee can help prevent a confidence crisis and Bank Run on UBS which is what caused Credit Suis's Club apps. Therefore, the implicit guarantee of unlimited government support for UBS may be the most valuable asset of all. This guarantee can instill confidence in depositors and investors, preventing the need for a costly government bailout in the future. In addition to all the cost cutting benefits that we mentioned earlier, the implicit guarantee that UBS can never fail may be the most valuable asset of all, Right guys, That wraps it up for this video.

What do you think about the UBS Credit Suisse merger? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one. Wall Street Millennial Signing out.