UBS’ acquisition of the failing Credit Suisse reframes the European banking market, but also presents significant technological challenges for UBS.
The $1.5 trillion, Zurich-based UBS moves from “too big to fail” to “way too big to fail” with the $3.2 billion purchase of Credit Suisse, with global ramifications should the acquisition go sour, Jost Hoppermann, vice president and principal analyst at research firm Forrester, told Bank Automation News.
The purchase by UBS “will hopefully stabilize the banking crisis, both in Europe and globally. … [UBS] is now 10 times the size of the next-largest private bank in Switzerland [Raiffeisen Group] and twice the size of Bank of America’s private banking business,” Hoppermann said. “Let’s hope that this will never [fail]; I hope that the situation will not come into existence.”
As UBS works to merge Credit Suisse’s business with its own, there are three main technology issues to address, namely:
1. Disentangling Credit Suisse’s systems for integration
UBS will look to run both banks’ systems in parallel for the short-term while integration is underway, Hoppermann wrote in a Forrester publication last week.
Credit Suisse’s technology will need to be disentangled to “prepare application integration and consolidation,” Hoppermann wrote.
Calling Credit Suisse embattled would be an understatement, Greg Cohen, chief executive at embedded payment platform Fortis, told BAN. The bank has system issues that will need to be corrected, particularly while running the two banks’ systems concurrently to prepare for a yearslong integration process.
Disruption is the challenge, he said.
“You’re running [the banks] on two separate core systems, two databases that are similar but different, and workflows that accomplish the same thing, but they’re just different,” Cohen said. “Those integrations, both from a technical standpoint and a ‘people, process and technology’ standpoint — every single one of them gets disrupted.”
2. Eliminating technological redundancy
Once integration begins, deciding which Credit Suisse systems will be shuttered and which processes will be moved to UBS systems or adopted from Credit Suisse will be another challenge, Hoppermann told BAN.
“If a bank wants to eliminate redundant systems, they first of all have to make sure that they cut the right functional footprints out of the application landscape,” he said.
In a conference call last week, UBS Chief Executive Ralph Hamers said the bank sees value in the technology offered by Credit Suisse and may look to use the failed bank’s digital capabilities within UBS.
“We see value in the combined entity,” Hamers said. “Credit Suisse’s strength, particularly in the U.S. and the technology sector, makes a very good fit to our strategy, where we know that technology entrepreneurs are the wealth creators of the future. They provide … some capabilities that are very strategic to us in terms of supporting technology entrepreneurs and wealth creation.”
3. Avoiding risk and regulatory pitfalls
Credit Suisse suffered multiple compliance-related challenges over the years, including a $2.1 million fine for money laundering in 2022. Its funding from Saudi National Bank was cut March 15.
Having the proper oversight in place to eliminate the more troubling aspects of Credit Suisse’s business will be important, Hoppermann said. The use of third-party risk management processes and a dedicated governance, risk and compliance (GRC) platform will help, he noted.
“Public knowledge is certainly that the credit risk management at Credit Suisse simply failed. … It is reasonable to assume that Credit Suisse did not improve their credit risk management in line with the challenges they faced,” Hoppermann said. “When you’re looking at a company’s GRC solutions, it’s certainly about building a platform as really a software that goes beyond risk management that consolidates enterprise-wide governance.”
Editor’s note: All amounts in USD
