With its Credit Suisse takeover officially wrapped up, UBS must now make good on its promise that the government-orchestrated rescue will deliver both for shareholders and Swiss taxpayers.
The world's biggest banking deal since the 2008 financial crisis has forged a wealth manager with an unrivalled global reach and $5 trillion in assets under management, handing UBS an overnight lead it would otherwise have taken years to achieve in key markets.
Arranged over a weekend in March to stave off a broader banking crisis, and backed by up to 250 billion Swiss francs ($281 billion) in public funds - the tie-up now poses huge challenges and potential rewards for Switzerland and its biggest bank.
Switzerland must now contend with a bank whose balance sheet is twice as big as its economy, while Sergio Ermotti, who was brought back in as CEO to oversee the mega merger, faces tough strategic decisions as UBS integrates its smaller rival against an uncertain economic backdrop.
THE SWISS BANK
Possibly the first hurdle is a politically fraught decision on Credit Suisse's "crown jewel", its domestic business.
Bringing this into UBS and combining largely overlapping networks could produce significant savings and Ermotti has suggested doing so was the base scenario for the integration.
But UBS will have to weigh that against public pressure to keep the Credit Suisse business separate with its own brand, identity and, critically, workforce. The unit had almost 7,300 staff at the end of 2022 and a 1.43 billion Swiss franc operating profit while the entire group suffered heavy losses.
A combined business would have a dominant position in the Swiss loan market, while public unease over a Swiss mega-bank, could lead to even tougher regulation and capital requirements.
UBS has said all options, which could include an initial public offering, are open, with a decision due within months.
BLEEDING STAFF, CLIENTS?
UBS has stressed its intention to move quickly to prevent staff and customer departures, with Chairman Colm Kelleher recently signalling net gains in business in some areas.
However, insiders talk of rivals aggressively wooing Credit Suisse clients and employees. One said about 200 people were leaving the bank each week.
Investors, finance experts and analysts say keeping, and growing, business while improving staff morale might be the biggest challenge of all.
Clients who would typically bank both with UBS and Credit Suisse to spread their risk, might now take some of that business elsewhere.
"One plus one will not equal two. A sizeable portion of the assets will be lost and that will have an impact on the profitability for UBS of the deal," said Alan Mudie, chief investment officer at Woodman Asset Management.
Moreover, such a complex operation risks the bank turning inwards, at the expense of innovation and customer service.
"My client relationship manager is going to be more worried about keeping their job than servicing my needs," said Arturo Bris, Professor of Finance at the International Institute for Management Development (IMD) in Lausanne.
'CULTURAL FILTER'
UBS, which has said it aims to finish the two banks' integration in three to four years, also made clear its combined workforce - now at around 120,000 - will need to shrink.
UBS Chairman Kelleher has openly spoken about fears of "cultural contamination" and applying a "cultural filter" to staff from Credit Suisse's investment bank, citing inadequate risk controls and unchecked growth and capital spending.
All that contributes to uncertainty, which could make it harder for the combined group to keep top performers and recruit new staff, some observers warn.
"An overhaul creates nervousness among all employees, also among the top performers," said Lars Schweizer, professor of finance at Frankfurt University, adding they often get approached by headhunters with offers from competitors.
SKELETONS?
While UBS has already provided a financial snapshot of the combined group and earmarked tens of billions of dollars for cost and possible losses arising from the tie-up, it has also warned the numbers could change materially over time.
UBS said it had found no skeletons in Credit Suisse's books, but only now will it gain full insight into a bank which has suffered from years of scandals, loose oversight and in March an admission of material weaknesses in its controls.
One potential risk stems from legal challenges to the decision by Swiss authorities to write off special AT1 bonds issued by Credit Suisse. While UBS is not a party to these legal actions, it could add to its funding costs.
INVESTMENT BANK HEADACHE
UBS executives said they aim to radically shrink Credit Suisse's investment bank. Yet there are questions over how far and how quickly UBS will run down the business and at what cost.
The Swiss government is providing a guarantee of up to 9 billion Swiss francs for potential losses related to Credit Suisse's investment bank on top of up to 5 billion francs in losses UBS has agreed to assume.
'POISONED CHALICE'
Ermotti promised his team would "work very hard" to avoid any consequences for taxpayers and analysts say that with Swiss federal elections due in October, UBS needs to tread carefully.
On paper, UBS does not seem to need any public funds, with a nearly $35 billion financial cushion from buying Credit Suisse at a fraction of its book value.
Still, talks on the backstop held since the deal was announced on March 19, suggest UBS was keen to secure what Barclays called a "poisoned chalice" because of potential for political backlash.
While Ermotti has played down concerns UBS will get too big, Switzerland's second-largest political party has proposed drastically shrinking its assets, saying the lender's scale and an implicit state guarantee raised the risk of another expensive rescue.
($1 = 0.8889 Swiss francs)
