The CRE Implications of UBS' Takeover of Credit Suisse

Call it another weekend surprise, as Swiss banking giant UBS bought out crumbling 167-year-old Credit Suisse for a $3 billion rescue — that, as Morningstar notes, might have been a bargain last week, but this week, who knows?

With this latest shakeup, it’s a good time to ask what the potential impact on commercial real estate might be.

At the end of its 2022 fiscal year, Credit Suisse held about $27.5 billion in real estate loans, down from $30.8 billion in 2021 and $31.4 billion in 2020, based on the bank’s annual reports. The 2022 sum was 9.4% of its total loan portfolio and 21.4% of the corporate and institutional loans, although some related loans like construction could be listed under another subcategory. The residential mortgage category is far larger, at $116.1 billion.

UBS also holds significant commercial and industrial loans according to its annual reports. In 2022, the collection was $25.3 billion out of $367.2 billion loans secured by collateral, or about 6.9%. Similar to Credit Suisse, the amount in residential mortgages held was much larger at $172.7 billion.

The acquisition would represent a total of $42.8 billion in commercial real estate lending and nearly $288.8 billion in residential mortgages.

Credit Suisse had faced many questions about its practices and stability for years. As UBS Chairman Colm Kelleher said in a statement, “This acquisition is attractive for UBS shareholders but let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure. Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses.”

“Capital-light businesses” suggests a direction of offering services that don’t require as much capital investment — raising a question of whether the new entity might deemphasize CRE lending. However, in its 2022 annual report, UBS included residential mortgage loans and commercial real estate business in the category of global wealth management and that both residential and commercial real estate activity had grown.

There have been recent big changes to Credit Suisse’s potential contribution, as Morningstar equity analyst Johann Scholtz suggests.

“Credit Suisse likely experienced significant net outflows of client assets last week, eroding its revenue base,” Scholtz wrote. But Morningstar calculates that UBS cost savings targets would cut Credit Suisse operating expenses by 60%. “The challenge for UBS will be to keep revenue attrition to a minimum during the restructuring period,” Scholtz added.

In addition, Swiss regulators are providing about $27 billion in downside protection, with the Swiss central bank ready to aid in liquidity, which “should ensure that UBS’ wholesale funding costs remain in check.”