Why Prosperous American citizens Love UBS, The Secretive Swiss Banking Wide

The bankers at UBS built their fortune with auniquely Swiss proposition. Secrecy. Russian oligarchs, dictators, mafiamembers, potentially terrorists out there using Swiss banksecrecy to hide their money, launder their funds and get away with whatevertheir crimes had been. At the core. They will not be subject to somepolitical influence because the Swiss government is leaving them alone. Or at least that's the perception. Hundreds of companies folded into UBS over its 16decade run. The result is a global enterprise with tens ofthousands of employees.

Now following a blockbuster acquisition of CreditSuisse. Ubs Group is poised to take on the world. It creates an absolute behemoth that will swallowup the entire market domestically in Switzerland as far as personal banking isconcerned and essentially obliterate competition. This could catapult UBS out of that basket ofpeers alongside Deutsche Bank, BNP Paribas and HSBC and into the realms of JPMorgan. How did UBS take Switzerland to the top of globalfinance and what challenges are emerging as this massive bank becomes evenbigger? Swiss bankers have to keep client informationsecret by law.

I've talked to Swiss bankers who say the onlyreason to have your money in a Swiss bank is because you want to hide that money there. And that's for two reasons. One is that the returns on investment generallyaren't as high in Swiss banks as they are in American banks or competitive banks aroundthe world. And also because the fees are pretty high therecompared to other banks around the world. So if you're paying more and earning less,you're there for some other reason than maximizing your profit potential in Switzerland. You can go to prison for revealing client details.

That's made it a magnet for foreign cash. Americans trying to hide money from the IRS,Argentines trying to hide money from the Argentinian government. According to UBS, more than half of its investedassets in its wealth management division come from people in the United States. In 2009, they admitted to using these laws tohelp 47,000 Americans dodge taxes. Ubs also has a large domestic footprint takingdeposits from customers across the many Swiss cantons.

This map shows where UBS had the most domesticcustomers pre-merger. They've since grown. Both UBS and Credit Suisse have really strongSwiss personal and corporate banking divisions. They have tried to focus on that andthe global wealth manager as key kind of profit centers, as pillars ofstability since the financial crisis and since they've had to try and quiteradically and quickly de-risk. They've done that quite successfully. Ubs says its founding values are displayed on thelogo three keys, symbolizing security, trust and discretion.

That secrecy has been dented by recentdevelopments in the last two decades because particularly the US tax authorities andtogether with them, other authorities have eroded some aspects of the secrecy. But it remains a distinctive feature. Today, with $5 trillion in assets invested. Ubs ranks in as one of the world's 30 largestbanks. Regulators call them global systemicallyimportant banks or g-sibs. G-sibs deserve attention from the perspective ofglobal financial sector stability. When you look at the list, they tendto be highly correlated with size.

And also to some extent with complexity and crossborder activity. Before the merger, both Credit Suisse and UBSwere in that list of the roughly 30 most systemically important banksin the world set by the Financial Stability Board. Governments generally are reluctant to let banksfail. So when a bank gets in crisis for one reason oranother, the typical response from government regulators is to move in andbroker a sale to some other bank which is bigger and healthier. That's more or less what happened when a bank runmounted in Switzerland.

This would potentially be Europe's most historicbanking combination if a deal would to come through since the financial crisis. Well, there have. Been a lot of talks about merging the two banks,and it's been something that's been reported about for for a long time before it actually happened. But it wasn't until the crisis that it was worthit for the Swiss government to put up the money to make the deal actually happen. As recently as February, the strategic board ofUBS looked at Credit Suisse and decided that it would not be desirable as anacquisition target.

Credit Suisse was pushed right to the brink andthe Swiss authorities were forced really to offer some pretty significant sweeteners tothe deal for UBS, including the $9 billion government loss backing and alsothe wipe out of $17 billion worth of 81 Credit Suisse bonds,which significantly reduced the risk for UBS, who gottheir main rival in Switzerland, essentially for a massive cutprice. Ubs ultimately paid about $3 billion to buy itsrival. The Swiss government pledged over $100 billion inemergency liquidity to push the deal forward quickly in the sale.

Credit Suisse shareholders expect a trade inabout 22 shares to receive one share, which the. Swiss government mostly did is impose losses oncreditors and shareholders of Credit Suisse. So shareholders didn't loseeverything. They got a little bit of money, but not much. Most creditors were made whole, but some of themweren't. So the holders of the most risky instrumentscalled contingent convertible or additional Tier one debt. These people lost all their money, which wascontroversial.

We knew that Credit Suisse had problems. Sorting through the problems may take time. Credit Suisse had a huge balance sheet, abouttwice the size of Lehman Brothers when it collapsed. Had four days to do their due diligence on CreditSuisse's entire business. They acknowledged in this SEC filingthat those risks are going to be present and that the haste with which theywere forced into this decision does mean that there are risks further down theline. But as it stands.

The opportunity that they see is to catapult usright to the, you know, the very upper echelon of the global banking system. Ubs said acquiring Credit Suisse may make the bankmore competitive globally, despite the potential increase in operational complexity. Ubs in its current form, is comprised of around370 various financial firms that it's absorbed overthe course of its two century history. Some of these founding banks led theindustrialization of Switzerland. Others opened early ventures abroad.

Many of these preceding companies grew as wealthypeople stowed cash overseas to escape rising taxes. By the 1940s, Swiss banks emerged as a globalforce, with Zurich becoming the third most important center behind New York andLondon. There have been a lot of inquiries andinvestigations, including their role during World War One or the predecessor banks, because UBS, aswe know it, is a product of multiple mergers. So there were different predecessors,including now Credit Suisse, but also Swiss Banking Corporation, with which theymerged in 1998. A wave of bank failures rippled through the UnitedStates in this era, creating an opportunity for.

International groups. The 2000 acquisition of PaineWebber for $10.8billion was hugely transformative for UBS. It enabled them to reach across the Atlantic withwhat has become their flagship wealth management arm. They are now the largest wealth manager inthe world, and that was an acquisition that was one of the moststrategically significant for any European bank this millennium. The 2007 housing crash put a dent in UBSportfolio. Traders speculated that the firm might fold, so.

The picture back in 2008 was UBS was a problembank among the two large Swiss banks. And Credit Suisse was the kind of, youknow, example to follow. And there are lots of ironies when youlook at those comparative developments. During the crisis, UBS took a massive hit. Their market cap went from $126 billion to 26 over the course of a couple of years. They were caught up in the Libor trading scandal. In the 20 tens, several banks were caughtmanipulating global interest rates at.

UBS. Over 2000 instances of misconduct wereuncovered. There was a $2 billion hit, which was incrediblysubstantial at the time, both reputationally and financially. What UBS is really been able todo is is restore an element of stability and risk aversion that Credit Suissekind of failed to do over that period. But UBS has still been embroiled in various taxevasion allegations that stem from that history of thecode of silence in Swiss banking. I'm pleased that we are closing a chapter, a 15year old chapter of.

Our own litigation inventory, let's call it. Ceo Sergio Ermotti is a veteran Swiss banker wholed UBS recovery from the global financial crisis. He rebuilt the bank into this kind of stable,profitable machine. Ermotti, who left in 2020 with a reputation forbeing quite ruthless, willing to to implement cuts, but being willingto do what was necessary to steady the ship. He returned to the company in 2023 after steppingdown from the post in 2020. At UBS, many questions remain about looming jobcuts, litigation and the firm's.

Future structure. Global banks like UBS answer to many regulators. When we think of Credit Suisse failingimmediately, we think, okay, what did the Swiss authorities do to monitor that bank? But actually, when you think about it, you haveto think about the UK authorities, the US authorities. Ubs may inherit some problems with thisacquisition. For example, the Senate Budget Committee reportedthat Credit Suisse maintained Nazi linked accounts as recently as 2020.

Credit Suisse, although it had pledged in 2014that it was going to work with the US government and not allow Americans to have secret financialaccounts inside Switzerland. They weren't doing that. In every case, the bank may face more scrutiny asit grows. I think Swiss authorities have realized that theycan't operate in a vacuum anymore domestically. Obviously, they love the idea thatthey had this modus operandi of secrecy, of discretion domestically andpolitically. That's that's a priority. And clinging on to that and resisting theinternational pressure to ditch it is is also a.

Priority. But, you know, if you want to havedecent trade deals and diplomatic relationships, you also need to, you know, havegive a bit of rope to, you know, to international partners. There is an element of pride and also perceptionof benefits in the fact that, for example, a lot of profit accrues to UBS and someof this goes into national coffers through group level taxation. That relationship between UBS and the Swissauthorities, between UBS and the Swiss body politic, so to say, will befascinating to watch going forward. And I think we're we're we're at the.

Beginning of a new phase now that there, so tosay, alone at the top.

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