Sunday, 19 March, was definitely more thrilling than the weekly Sunday night thriller on German TV or the football clásico between Barcelona and Madrid on the same day. SVP, Signature, or First Republic looked plain boring in comparison to the showdown in Zurich resulting in UBS having been forced to buy Credit Suisse under remarkable and unprecedented circumstances, in which international law firms are already lining up. But what does the deal mean for fund distribution?
“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure,” stated Colm Kelleher, UBS’ chairman on that Sunday. This is a quote that says it all. The acquisition was cheap, extremely cheap, with litigation risks mostly covered by Swiss taxpayers. However, the integration won’t be easy. There are a lot of devils in the details and our industry does not have an exactly great track record in large-scale integrations. Nonetheless, if executed well and fast, it could create a real powerhouse.
In terms of the two asset management businesses, the deal will create Europe’s third-largest fund house and second-largest passive fund provider. However, there are very significant overlaps in the combined business, which could well result in a bloodbath for Credit Suisse staff. It is already reported that headhunters are on the roll, either being already connected by Credit Suisse employees or proactively chasing Credit Suisse’s best people. In this context, UBS’ asset management business employs some 3,600 people in more than 20 locations, while CSAM is home to around 1,200 employees across 5 investment hubs.
From a fund distribution perspective, leaving aside 2022, both respective asset management units managed to post significant growth in the last 5 years, further strengthening their networks and perception with European fund selectors. Now, the deal can harm recent efforts. Large-scale M&A activity is not popular with experienced fund selectors. Too often, integration processes and long periods of uncertainty lead to frustration and negative consequences for key staff, ultimately affecting investment outcomes and investor relationships.
For third-party asset managers selling to Credit Suisse and UBS, the deal is obviously bad news. The acquisition does not only wipe out a major Global account, but it also risks complicating and slowing down things at UBS, an account that has provided spectacular third-party fund implementations in a serial manner over the last 3-4 years. If asset managers have well-established relationships with UBS the deal can provide more business due to increased assets. However, if an asset manager has good business with Credit Suisse, but not with UBS, assets might well become at risk, as UBS’ fund selection team is the undisputed elephant in the room.
Anyway, the key question is whether UBS will keep all of Credit Suisse or if UBS will sell some Credit Suisse units, which could be financially extremely tempting for UBS. Buyers’ interest is certainly there and a number of potential acquirer names are rumored. Also, BlackRock expressed its interest, which also hints towards Larry Fink getting on the hunt again – not aiming at rabbits, but going after elephants, but that’s a different story.