UBS has unveiled an independent legal entity for the 18,000 staff performing back-office services. The step is part of the bank’s emergency plan for severe crisis situations.
Switzerland’s two big banks, UBS and Credit Suisse (CS), by end of 2019 need to have provided Swiss banking regulator Finma with a plan of how they will protect those parts of their business that are relevant for the country operational security in case of a severe crisis.
The most important step was the creation of legally independent Swiss units. UBS has now gone a step further.
(picture: SIX/Clearit)
The Zurich-based lender has put the internal services business into an independent legal entity called UBS Business Solutions. «This is a lesson from the Lehman bankruptcy,» Markus Ronner (pictured above), head of emergency planning at UBS, told «Neue Zuercher Zeitung». If UBS faced bankruptcy, critical services would still be provided.
18,000 UBS Staff
The new entity affects the whole bank. Some 8,000 employees in Switzerland alone will be shifted to the new entity. Across the globe, the organization will have 18,000 staff by the end of the year. The services affected are IT, transactions, trading systems, risk management, legal services, human resources and marketing.
The services provided by these groups of staff are regulated by a global master service agreement and are delivered to 130 UBS units. The agreement includes pricing and quality standards as well as a clause stipulating that services have to be provided for at least two more years after parts of UBS were declared bankrupt.
1.3-Billion-Franc Investment
The unit also has to have enough liquidity to maintain its services for six months. With the creation of the independent entity, UBS has complied with most demands of the emergency plan, according to Ronner. Even if parts of UBS were to be shut down, the parts of the business relevant for the Swiss system would remain intact.
UBS currently has more than 74 billion Swiss francs in loss-bearing capital, Ronner said. The bank invested some 1.3 billion francs to comply with the requirements of the emergency plan, mainly in a bid to simplify the organization and structure of the banking group.
The adjustments also led to extra costs of a high double-digit million-franc amount annually.
UBS Expects Substantial Rebate
The better the emergency plan and the further it goes above the legal requirement, the higher the chance that UBS and CS receive a rebate on equity. UBS for instance expects a rebate of 1 percentage point on its borrowing by the end of 2019.
Given it has total assets worth some 900 billion francs, this would translate into a 10 billion franc rebate on the demand for its equity.
