UBS chairman casts doubt on wisdom of merger

PETER RODGERS

Business Editor

The prospect of a full-blown merger between Union Bank of Switzerland and CS Holding receded yesterday when Nikolaus Senn, chairman of UBS, said he was sceptical about the benefits of co-operation with any rival.

As alarm mounted in the City about the threat of big redundancies in the London operations of the two banks if a pounds 32bn merger did go ahead, Mr Senn said it was questionable whether joining with a competitor bank was an effective way to lower costs.

In London, UBS employs 2,500 and CS Holding, parent of Credit Suisse, CS First Boston and Credit Suisse Financial Products, employs 4,000. There are bound to be hundreds of London redundancies if a merger goes ahead, and there were reports yesterday that the total could reach thousands. Sources at the two banks said not even preliminary work had been done on the jobs fall-out.

In an interview with the Swiss business newspaper Finanz & Wirtschaft, Mr Senn did not refer to any rival bank by name. But the interview took place earlier this week, days after Rainer Gut, chairman of CS Holding, suggested to him that the two Swiss banking giants should discuss a merger.

The talks about creating the world's second-biggest bank were confirmed on Tuesday and UBS's board meets this afternoon to decide a response.

Analysts displayed growing doubts but said there was still a strong possibility of the talks leading to moves that fall short of a full merger.

There is urgent pressure on the big three Swiss banks to deal with enormous overcapacity in their home markets and they are also anxious to build international investment banking operations to rival the leading American houses.

One factor that could persuade the UBS board to keep the door open to talks is a shareholders' meeting in Zurich next Tuesday at which Martin Ebner, a dissident shareholder, will try to overturn the promotion of Robert Studer, the former chief executive, to chairman.

Mr Ebner has been complaining for years about low returns for shareholders in UBS. The news of the merger proposal has overshadowed the shareholder meeting and is seen by analysts as helping UBS get Mr Ebner off its back.

If the talks are called off completely, the focus could switch back to Mr Ebner and the vote on Mr Studer's new job. In Switzerland, a win by Mr Ebner has not been ruled out.

Mr Senn was asked whether UBS believed a direct competitor would be a potential candidate for a co-operation agreement aimed at lowering costs. He replied: "It is not the job of the chairman of the board to comment on detailed questions of strategy. But it is fundamentally questionable whether this kind of solution is effective at all and would lead to real cost reductions."

Mr Senn's remarks confirmed a growing view in the markets - thought to be widely shared among UBS senior management - that the two banks overlap too much to make a full merger possible.

In London there are substantial overlaps in derivatives and bond trading. In corporate finance, CS First Boston is a more powerful force in the US, although there have been senior defections recently to UBS in New York. UBS has a stronger corporate finance track record in Europe.

Analysts believe 15,000 retail banking jobs are at risk in Switzerland. Mr Senn also told Finanz & Wirtschaft that he believed UBS's retail banking activities had good chances in Switzerland.

CS Holding shares, which got off to a good start after news of the merger proposal emerged, slipped toward the end of the day and ended lower. UBS shares were under pressure from the start and closed almost 2 per cent lower. Dealers said the market was increasingly sceptical about the creation of a giant Swiss bank.

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