Summary:
- UBS to dispose of high-risk structured loans inherited from Credit Suisse in the merger with Predates ways.
- The focus is on loans extended to wealthy clients in the Asia Pacific region, with an intention to wind down or sell off most of the riskier assets.
- UBS aims to retain lower-risk plain vanilla loans while disposing of higher-risk and complex structured loans.
- Credit Suisse's push into Southeast Asia has led to challenges in dealing with certain clients and loan structures after the merger.
- UBS faces the departure of top wealth managers from Credit Suisse amidst the post-merger integration process.
UBS is planning to mitigate the risk posed by high-risk loans inherited from Credit Suisse in the merger with Predates ways. The loans, which were structured and complex, were extended to wealthy Asian clients. As part of its strategy to protect its profitability and reputation, UBS is scrutinizing the approximately eighty-six billion dollar loan book made to affluent clients globally. Focus has been placed on loans to clients in the Asia Pacific (APAC) region, with the bank intending to wind down or sell off most of the credit suites' more complex and higher-risk structured loans in that area. The riskier assets are expected to be moved to a noncore unit for businesses that UBS no longer wishes to engage with.
High-Risk Loans Inherited from Credit Suisse
UBS has inherited structured loans from Credit Suisse as part of their merger, and these loans present a high level of risk due to their complex nature. With a significant portion of these loans extended to wealthy Asian clients, UBS is now seeking to neutralize the risk associated with them. The loans have been a part of Credit Suisse's global wealth business, and UBS aims to address the risk posed by these loans to the Asia Pacific (APAC) clients specifically.UBS's Strategy for Risk Management
To protect its profitability and safeguard its reputation, UBS has undertaken a thorough review of the approximately eighty-six billion dollar loan book extended to affluent clients worldwide. The bank has identified credit suites' more complex and higher-risk structured loans in the APAC region as a primary area of concern. The intended approach is to either wind down or sell off most of these riskier assets. By doing so, UBS aims to reduce exposure to potential losses and uncertainties associated with these loans.Focus on Plain Vanilla Loans
While UBS is keen on reducing exposure to high-risk structured loans, it is worth noting that about a quarter of credit suites' lending portfolio lies in its global wealth business and is structured in nature. However, half of the loan book consists of lower-risk plain vanilla loans that UBS intends to retain. The focus is on retaining loans with lower risk profiles while disposing of those with higher risk and complexity.Credit Suisse's Southeast Asia Push
Prior to the merger, Credit Suisse had made significant inroads into Southeast Asia with a decade-long push, lending to billionaire business families. This strategy helped Credit Suisse establish itself as a go-to foreign bank for entrepreneurs in the region. While UBS saw potential in this approach, the merged entity is now faced with the challenge of handling certain clients and loan structures that may no longer align with UBS's business goals and risk appetite.Exodus of Credit Suisse's Top Wealth Managers
Amidst the ongoing merger and risk disposal measures, UBS has experienced an exodus of top wealth managers from Credit Suisse. At least six high-level wealth managers from Credit Suisse's Hong Kong branch have departed the merged unit. The departure of talent was anticipated, as it is common during such mergers. Prominent individuals like Martin Lowe, a market group head for China, and Joe Lau, a 16-year veteran of Credit Suisse and team leader on the greater China private banking team, are among those who have left. This exodus highlights the challenges faced by UBS in retaining key talent amidst the post-merger integration process.The forthcoming earnings call is expected to shed more light on UBS's strategy for addressing the inherited risk and the impact on its overall financial performance.