06 February, 2010

Switzerland Bank Mergers & Acquisitions (UBS)

Photo: When the Swiss Bank Corp. and Union Bank of Switzerland merged in 1998, management decided to keep the UBS name, but retained Swiss Bank Corp.'s logo. Shown above is an old Swiss Bank Eurocheque with a UBS Bank (Canada) advertisement in 2006, both featuring the same tri-key logo.


UBS AG was formed in 1998 when the Swiss Bank Corporation and the Union Bank of Switzerland merged. Domestically, UBS is a universal bank offering retail, corporate and investment banking, and asset management services. It also provides private banking for the wealthy. Abroad, the bank concentrates on commercial and investment banking activities for corporate clients, as well as private banking for wealthy individuals.

Swiss Bank Corporation

Swiss Bank Corporation (also Schweizerischer Bankverein; Société de Banque Suisse; Società di Banca Svizzera) can trace its history to 1854 when six private bankers in Basel joined forces to form the Bankverein. Like other Swiss banks, Bankverein participated in financing the country’s railway networks and manufacturing industry. In 1872, Basel-based Bankverein merged with Frankfurter Bankverein to form the Basler Bankverein, becoming a joint-stock bank in the process. Following a series of takeovers, the bank adopted the new name Schweizerischer Bankverein in 1896. In addition to the Basel head office, the bank now had offices in St. Gall and Zurich. In 1898, the bank opened its first international branch in London.

During World War I, Switzerland maintained neutrality and did not participate in the war. Still, Swiss banks suffered losses from the collapse of Swiss exports and a number of major industrial companies. Swiss Bank Corporation overcame the wartime slump relatively well as it didn’t incur major losses abroad. In 1917, the English name of the bank was changed from Swiss Bankverein to Swiss Bank Corporation.

The Depression in the 1930s was difficult times again for Switzerland. Just before the onset of World War II, however, the bank received a massive influx of foreign funds and bullion for safekeeping. In 1939, Swiss Bank Corporation opened an office in New York to store some of these assets for fears that even neutral Switzerland might be invaded by the Nazis.

In 1945, Swiss Bank Corporation took over the ailing Basler Handelsbank. Throughout the 1950s, the bank expanded exponentially due to the rebuilding boom in Europe. By 1962, SBC became the second largest bank in the country. Overseas offices were opened in the U.S., Canada, Japan, Hong Kong and Luxembourg between 1965 and 1975. In 1978, SBC took a majority interest in Geneva-based private bank Ferrier Lullin & Cie., S.A.

In 1982, SBC, Union Bank of Switzerland and Credit Suisse formed Premex AG to offer precious metals brokerage service to reinforce bullion trading in Zurich, as competition from other financial centres like New York and Hong Kong heated up.

Despite acquiring a few brokerages and investment banks in Britain and France in the late 1980s, SBC’s international operations remained weak as a result of its traditional Swiss conservatism. In 1992, however, SBC bought Chicago-based options specialist O’Connor & Associates to participate in the burgeoning derivatives market. Then in 1994, SBC bought U.S. fund manager Brinson Partners for USD $750-million. Brinson Partners had USD $36-billion of assets under management. Despite these acquisitions, however, SBC continued to suffer from mediocre profitability in the 1990s as a result of the global recession.

Union Bank of Switzerland

Union Bank of Switzerland (also Schweizerische Bankgesellschaft; Union de Banques Suisses; Unione di Banche Svizzere) was created in 1912 through the merger of the Bank in Winterthur (founded in 1862) and Toggenburger Bank (founded in 1863). Interestingly, the Bank in Winterthur back in 1872 participated in transforming the Basel’s Bankverein to the Basler Bankverein, which later became Swiss Bank Corporation.

Initially, the Schweizerische Bankgesellschaft had nine branches in eastern and northeastern Switzerland. In 1921, the English name of the bank was changed from the Swiss Banking Association to the Union Bank of Switzerland, conforming to the French version.

Like former rival SBC, UBS struggled through the turbulent times from the onset of World War I to the end of World War II. After losing its European assets outside of Switzerland during the wars, UBS purposely avoided the foreign market for 20 years. In 1945, it took over the insolvent Zurich-based Eidgenössische Bank. In the same year, UBS moved its dual-headquarters from St. Gall and Winterthur to Zurich, as the latter rose to become a prominent financial centre.

Despite opening an office in New York in 1946, UBS’ expansion in the 1950s and 60s otherwise focused on the domestic front, and a number of small banks were acquired. By 1962, UBS had 81 branches in Switzerland and had become the largest bank in the country.

In 1973, UBS acquired the remaining 20% of gold refiner Argor S.A. UBS had owned 80% of Argor since 1960.

UBS' international expansion happened rather later than SBC and Credit Suisse, with the first truly operational branches opening in London and Tokyo in 1967 and 1972 respectively. In 1970, UBS set up American UBS Corp. in New York to enter the massive American securities underwriting market. The bank also opened representative offices in Buenos Aires, Hong Kong, Sydney and Melbourne in 1969. Beginning in the 1970s, the bank actively pursued its expansion in the international private banking business and many offices were upgraded to full branches.

In 1984, UBS acquired 29.9% of British brokerage and fund manager Phillips & Drew, one of the largest in London. The year 1986 was a busy one for UBS: first, the bank bought the rest of Phillips & Drew; then it acquired Deutsche Länderbank; lastly, it sold 25% of its gold refiner Argor S.A. to Germany’s W.C. Heraeus. Argor was then renamed Argor-Heraeus S.A.

Recent transaction(s):

  • In 1993, rival Credit Suisse outbid Union Bank of Switzerland in a battle for Schweizerische Volksbank. UBS then ended up acquiring five small Swiss banks in a consolidation wave in 1994.
  • In 1995, Swiss Bank Corporation acquired British merchant bank S.G. Warburg plc for GBP 860-million (USD $1.37-billion), forming SBC Warburg.
  • In 1996, SBC acquired Standard Chartered Bank’s international private banking business, propelling SBC to the No. 2 wealth manager in Asia.
  • In 1996, reports surfaced that both Switzerland and its banks collaborated with Nazi Germany during World War II, and that dormant bank accounts left behind by Holocaust victims were never disclosed to the potential survivors and estates. Following a firestorm of protests from Jewish leaders as well as threats by the U.S. to boycott Swiss banks, the Swiss National Bank, Credit Suisse, SBC and UBS contributed CHF 270-million into the Humanitarian Fund for the Victims of the Holocaust. Then in 1998, UBS (which included the old SBC) and Credit Suisse agreed to a USD $1.25-billion (CHF 1.8-billion) settlement with the claimants of the Holocaust class-action lawsuits.
  • In 1997, Swiss Bank Corporation bought U.S. investment bank Dillon, Read & Co. for USD $600-million.
  • In late 1997, Swiss Bank Corporation and Union Bank of Switzerland merged and adopted the new corporate name UBS AG.
  • In 1999, UBS sold its international trade finance business to Standard Chartered plc for CHF 300-million.
  • In 1999, UBS sold its 75% stake in precious metals refiner Argor-Heraeus to W.C. Heraeus, which already owned 25% of the UBS subsidiary.
  • In 2000, UBS bought U.S. investment bank Paine Webber Group Inc. for USD $11.8-billion.
  • In 2006, UBS bought the private-client business from Piper Jaffray for USD $500-million.
  • Also in 2006, UBS bought Brazilian investment bank Banco Pactual for USD $2.6-billion. UBS had planned to use Pactual's platform to expand its investment bank business in Latin America. UBS paid USD $1.0-billion upfront for Banco Pactual, and agreed to pay as much as USD $1.6-billion further by 2011 if certain conditions were met. (See later entry.)
  • Also in 2006, UBS bought McDonald Investments, an investment advisor with 51 branches from KeyCorp for USD $280-million.
  • In 2008, UBS bought France's Caisse Centrale de Réescompte Group for Eur 387-million (USD $574-million) from Commerzbank AG. Caisse Centrale de Réescompte was an asset and wealth management firm with more than Eur 13.3-billion (USD $19.7-billion) of assets under management.
  • Also in 2008, UBS sold a portfolio of distressed U.S. mortgage assets with a nominal value of USD $22-billion to BlackRock for USD $15-billion. The USD $7-billion loss had already been written down previously. As part of the agreement, UBS actually lent USD $11.25-billion to BlackRock to finance the sale, with BlackRock financing the remaining USD $3.75-billion on its own. BlackRock's investors were liable for the first USD $3.75-billion in potential losses from the portfolio. Any additional losses would be borne by UBS. UBS was essentially swapping its direct equity exposure to the sour mortgage assets for debt exposure in the form of the loan to BlackRock.
  • On 2008-10-16, UBS reached an agreement with the Swiss government to raise CHF 6-billion (USD $5.28-billion, Eur 3.93-billion) of new capital, as well as unload CHF 60-billion (USD $52.8-billion, Eur 39.3-billion) of bad assets. The Swiss Confederation bought CHF 6-billion of mandatory convertible notes with a return of 12.5%. When fully exercised, the Swiss government would own 9.3% of UBS. UBS and the Swiss National Bank (SNB) also agreed to transfer CHF 60-billion of soured assets into a separate fund with CHF 6-billion of equity capital funded by UBS and a CHF 54-billion loan provided by the SNB. The interest rate on the SNB loan to UBS would be 250 basis points above the one-month LIBOR rate. SNB would be entitled to share the profits if the bad assets were eventually sold above costs.
  • In late 2008, UBS sold its 1.3% stake in Bank of China for USD $808-million. UBS first acquired the stake in 2005 for USD $491-million.
  • In 2009, UBS sold Brazil’s Banco Pactual to Andre Esteves, the former head of business, for USD $2.5-billion. UBS would book a small loss on the sale but would free up capital needed to restore its capital reserves following massive losses in 2008 and 2009.
  • In June 2009, UBS raised CHF 3.8-billion (Eur 2.51-billion) in new capital from a common stock issuance.
  • In August 2009, the Swiss government sold its CHF 6-billion investment in UBS for about CHF 5.4-billion (Eur 3.56-billion, USD $5.07-billion) one day after UBS reached an agreement with the U.S. Internal Revenue Service on releasing information on American clients suspected of tax evasion. In addition to the sale proceeds, the Swiss government also received CHF 1.8-billion in interest payments from UBS.
  • In September 2011, UBS lost USD $2.3-billion (GBP 1.48-billion, CHF 2.05-billion) from unauthorized transactions by a rouge trader. The latest loss dealt a major blow to UBS' creditibility as the bank had repeatedly reassured its clients and investors that new measures had been in place to monitor and reduce its risk profile following USD $50-billion of write-downs during the credit crisis. UBS also saw its clients pulling some CHF 400-billion of funds, or 20% of the total client assets, out of the bank's accounts between 2008 and 2010.
  • In October 2012, UBS announced 10,000 jobs will have been cut by 2015, mainly in the bank's London, New York and Swiss fixed-income operations.  The bank also planned to reduce its risk-weighted assets by another CHF 100-billion (USD $107-billion) to alleviate new capital requirement.  UBS will re-focus on private banking, wealth management, commercial banking, corporate advisory, foreign exchange and precious metals. 

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