Switzerland’s largest bank will soon have too many entities on the mainland doing the same thing. finews.asia takes a look.

The teams working on integrating UBS with Credit Suisse probably feel like they are facing one unsolvable dilemma after the other.

The current situation in China makes that abundantly clear. When UBS announced its new operating model and management team in early May, it steadfastly maintained that both banks would operate independently for the foreseeable future. 

But doing that is likely to be quite difficult on the mainland for any prolonged length of time given the number of entities the combined bank will soon have there.

Too Many

For example, the list on the China Securities Regulatory Commission website of securities companies shows UBS owns 51 percent of UBS Securities Co., Ltd. (finews.asia reported last week the stake was 67 percent) while Credit Suisse owns 51 percent of Credit Suisse Founders Securities Limited (since renamed Credit Suisse Securities (China) Limited (CSS).

When it comes to fund management companies, the CSRC list is similar. UBS owns 49 percent of UBS SDIC Fund Management Co., Ltd, and Credit Suisse 20 percent of ICBC Credit Suisse Asset Management Co., Ltd.

Without getting into the history of each of the joint ventures, which finews.asia has reported on extensively, it is clearly too many for what is largely a similar type of business, regardless of whether the powers that be in far-off Zurich want to keep them segregated as separate.

Onshore Wealth

The regional media in Asia Pacific have latched on to that, with «Nikkei Asia» (paywall) saying last week that UBS’s fund management project has now stalled.

Another media outlet, «funds global Asia» merely maintained that the rescue of Credit Suisse will prompt UBS to rework its regional expansion plans, noting that the CSRC does not allow a foreign bank to own a majority of more than one capital markets venture, something that finews.asia also indicated last week.

The key here will be whether the regulators agree that UBS and Credit Suisse are two separate banks or not after the merger. And if so, for how long?

No Cakewalk

But it is also looking at the whole thing too simply. The four entities are joint ventures and simply increasing or decreasing stakes in them will not necessarily be a cakewalk with their partners on the opposite side.

Also, any changes in ownership will require the CSRC’s agreement and untold reams of regulatory paperwork. There is also the extenuating circumstance that Credit Suisse as a foreign shareholder no longer fulfills the Chinese regulator’s conditions when it comes to reputation, performance, and long-term credit. 

But you can make an argument that there is some uncertainty in how the latter will be handled given the regulator has apparently not done anything related to those three issues for the past several years, a period in which Credit Suisse recorded substantial losses and, as we now know, subsequently required rescue.

Difficult Choices

Beyond all this, we also shouldn’t forget the small detail that UBS also has an onshore wealth management business in China separate from all the joint ventures. 

Everything taken together, the current situation on the mainland is a microcosm of the many difficult choices the bank faces around the world.

In short, it will be extremely hard for the integration team to come up with a wide-ranging, holistic vision for a credible, combined future of the two businesses without getting tripped up by the detail.