Ubs, Swiss Bank Corp Merge

Two of Switzerlands top banks yesterday announced a merger creating the worlds largest asset manager, with a fund portfolio worth almost $1 trillion.

Formed through the merger of Union Bank of Switzerland and Swiss Bank Corp, the United Bank of Switzerland will have managed assets of 1,320 billion Swiss francs ($912.8 billion). Total combined assets will be 922.3 billion Swiss francs, and a market capitalisation of $59 billion at December 3 prices will make the new financial group the worlds fourth highest after HSBC, Bank of Tokyo-Mitsubishi and Lloyds TSB Group.

It is in the general interest that two strong and solid Swiss banks should join forces, SBC chairman Georges Blum told a news conference. Individually, they might otherwise find themselves in partnerships where the Swiss interests could no longer be safeguarded to the same extent, he said.

 

Shares in both bank groups jumped on the announcement after rising strongly last week in fevered speculation that a wedding of giants was in the works. UBS bearer shares were up 13 per cent or 259 Swiss francs at 2,189 francs about 10 minutes after the market opened. SBC registered shares gained six percent or 27.50 Swiss francs to 475.

Blum said the merger, signed by both boards on Friday night, was the result of talks initiated in April 1995 and which had been running, with some interruptions, since then. Blum said the banks believed they had to act now to gain size, markets and economies of scale before being overwhelmed by an ongoing wave of mergers and restructuring in the worlds financial services industry.

We need to confront this structural change from our present position of strength rather than letting it roll over us passively, Blum said. The merger should be completed by late May 1998 after shareholder and regulatory approval from European Union and Swiss cartel authorities, UBS chairman Robert Studer said. We expect all the necessary approvals to be forthcoming over the next few months, meaning that the merger could be completed towards the end of May, he said. The banks will hold separate extraordinary shareholder meetings on February 3 and 4 to vote on the merger pact. The new bank will make 13,000 of the merged groups 56,000 employees redundant over a three to four year period, with some 6,000 job losses falling abroad and the balance in Switzerland.

It will have four divisions: private banking, Brinson institutional asset management, consumer and corporate banking, and Warburg Dillon Read investment banking. The banks said the merged entity would be the worlds largest asset manager ahead of Japans Postal Life Insurance Bureau (Kampo) with $798 billion and Fidelity with $516 billion.

Restructuring costs of about seven billion Swiss francs could cause a technical loss in 1997, but would pave the way for sustainable annual savings of three billion to four billion francs in three to four years.

The banks said they expected the merged institution to post after-tax consolidated profits of some 10 to 11 billion Swiss francs by the year 2002. The group also foresees a return on equity of 15 to 20 per cent by then.

Shareholders in UBS will be offered five registered shares of the new merged bank for each current UBS bearer share.

They will receive one registered share of the new group for each current UBS registered share held.

SBC shareholders will receive 1-1/13 registered share in the new group for one existing registered share.

UBS chief executive Mathis Cabiallavetta will become chairman of the new group, and SBCs chief executive Marcel Ospel will be the combined groups chief executive.

Studer at UBS and Georges Blum at SBC will both step down as chairmen of their respective boards.

Ospel said that beyond the medium-term financial goals our objective is to achieve a superior cost/income ratio of under 60 per cent.

He said the target was for a core capital ratio of 8.5 to 9.0 per cent and in addition, he said, the merged group would gradually withdraw from activities which have no bearing on our core businesses.

Ospel declined to comment on which businesses might be disposed of, saying the issue was under study.