UBS "takes the lead": sets more than 20 "red lines" to prevent cultural pollution in Credit Suisse.

UBS has finally completed its historic acquisition of Credit Suisse, but a series of reform measures to prevent "cultural pollution" from Credit Suisse have just begun.

On June 12, the Financial Times quoted sources as saying that UBS will impose strict restrictions on Credit Suisse employees to reduce a series of risks after the merger.

Sources said that UBS has drawn up about 23 "red lines" covering 11 financial risks and 12 non-financial risks. A series of activities that Credit Suisse employees are prohibited from engaging in from the first day of the merger include:

To prevent risks such as money laundering and executive bribery, Credit Suisse employees will be prohibited from receiving new customers from countries with higher financial risks, including Afghanistan, Albania, Belarus, Congo, Iraq, Kosovo, etc.;

Credit Suisse employees cannot launch new products without the approval of UBS managers;

Credit Suisse employees are prohibited from trading a series of complex financial products, including Korean derivatives and options on certain quantitative indices;

If Credit Suisse employees want to extend loans for yachts, ships, and real estate worth more than $60 million (about HK$468 million), they must obtain approval from UBS senior management, and providing loans to foreign customers and properties must also be approved by UBS.

UBS Chairman Colm Kelleher said last month that setting these "red lines" was due to concerns about "cultural pollution" from Credit Suisse:

We will set incredibly high standards for every "Credit Suisse person" who enters UBS.

Credit Suisse CEO Ulrich Koerner told employees in a memo that although there will be no substantive changes to the work done by each employee, there will be "the latest work rules that we must all comply with."

In addition, layoffs are also a necessary measure for UBS after the merger. According to Reuters, on June 2, UBS CEO Sergio Ermotti warned of layoffs at an event:

Painful layoff decisions will be made after taking over Credit Suisse. We will not be able to create job opportunities for everyone in the short term. Synergy is part of the story.

We need to carefully examine the cost basis of independent and merged institutions and create a sustainable result. This will be painful.

In addition, De Ferrari will become a senior advisor to Iqbal Khan, head of UBS Wealth Management, Hannaford will be the head of the technology department of its US wealth management business, and Wildermuth will be appointed as the chief risk officer of UBS Americas business and the merged US legal entity.

Meanwhile, Credit Suisse's General Counsel Markus Diethelm, CFO Dixit Joshi, Asia-Pacific head Edwin Low, co-head of investment banking David Miller, and co-head of markets Ken Pang have decided to resign. A spokesperson for UBS said that after the merger of the two banks, only one-fifth of the approximately 160 management personnel came from UBS.

According to Wall Street News, after the merger, the newly created Swiss financial giant's balance sheet will reach $1.6 trillion, about twice the size of the Swiss economy, and its assets will reach $5 trillion. UBS has thus acquired Credit Suisse's retail banking business, "the jewel in the crown," saving a lot of duplicate construction costs and strengthening UBS's position as a global wealth management leader.

Ermotti said that although the merged balance sheet of the two banks will reach about $1.6 trillion, UBS's goal is to reduce it to $1.35 trillion or $1.4 trillion:

UBS's risk level is lower than Credit Suisse's, and the merger is equivalent to a 35% growth for UBS.

What is Credit Suisse's "corrupt culture"?

According to Wall Street News, after the "reluctant" acquisition of Credit Suisse, UBS's high-quality assets were lowered, and it also had to bear Credit Suisse's loss of about $5.4 billion. If UBS's stock price plunges like Bank of America's acquisition of Merrill Lynch in 2008, the risk will spread within the financial system.

At the same time, UBS's biggest concern is that its carefully cultivated corporate culture may be eroded by the "corrupt culture" that exists within Credit Suisse.

UBS was in trouble during the 2008 financial crisis, and after accepting government relief and being involved in a series of scandals, it reduced its more aggressive business and returned to a more conservative wealth management institution. In contrast, Credit Suisse, which did not fall into trouble at the time, accelerated its entry into the high-risk investment banking market and expanded rapidly.

"This may be the core of the cultural conflict between the two banks in the eyes of internal employees," said a trader who had worked for both institutions for many years.

UBS has always had a very friendly, cooperative, and team-oriented culture. When I say friendly, I mean they actually like each other... Investment banking has never been in UBS's DNA.

Credit Suisse may be the opposite, and everyone is very sensitive. Credit Suisse employees are basically told to use the balance sheet to get huge bonuses, which is the game rule. This culture has been going on for 30 years and there is no sense of shared participation.

A former UBS employee said that investment banking is seen internally as a behavior similar to gambling. Credit Suisse's domestic banks are attractive, but for a culture like UBS that is "not flashy and low-key," the asset management and investment banking departments have bigger problems.

UBS executives are generally concerned that they are in a "secret competition" with a bank that is willing to accept high-risk customers and provide high-risk products.

Credit Suisse was in trouble due to scandals and huge losses, and its internal report stated that all of this was caused by a "lazy attitude towards risk."