Welcome aboard, UBS!
Swiss banking giant never sought a shipping business, but it now has one following its enforced marriage with Credit Suisse
It remains to be seen whether UBS will see shipping as ‘strategic’ or ‘non-core’
WHEN two major institutions merge — usually after months of negotiations and planning — the sealing of the deal usually look nothing like some of the images from the hasty news conference in Bern when the merger between UBS and Credit Suisse was unveiled.
UBS chairman Colm Kelleher and Credit Suisse chairman Axel Lehmann looked ill-at-ease at the weekend, and no wonder.
For Credit Suisse, a history of 166 years has come to an end, while what ostensibly seems a good deal for UBS is rife with unknowns. Clearly, neither had envisaged getting into bed with the other and they had next to no time to prepare for it.
The management at UBS is almost certainly still getting to grips with the outcome and it is too early to say what the future holds for the Credit Suisse shipping portfolio.
As Lloyd’s List reported, the Credit Suisse shipping portfolio stood at an estimated $10bn at end of 2021, putting it at the periphery of the world’s Top 10 lenders to the industry. But it has been the largest lender to Greek shipping by some distance for the past seven years. With more than $5bn of exposure to Greek shipowners, another $4bn-plus has been lent to the industry in the Far East and elsewhere in Europe, mainly.
According to Petrofin Bank Research, which maps banks’ shipping portfolios both in the Greek market and globally, the trend in the past two or three years has been for the portfolio to shrink. Figures for last year are not yet available.
By contrast, UBS’ global shipping loans come to about $200m which, rounded down, is effectively “nothing”.
So completely has UBS eschewed shipping that introductions between the two may very well be as awkward as the Kelleher-Lehmann handshake in Bern the other night.
Now, there is always the possibility that UBS has been secretly coveting a large shipping loan book all this time but just felt that it was too much trouble to gather the expertise to do so organically. In which case, the Credit Suisse book will come as a godsend.
More likely, you would have to guess, if a major bank over many decades avoided a certain kind of business, you would think it was because it really did not want to do that type of business.
That probably goes double for UBS because in the Credit Suisse model it had right under its nose a recipe for linking ship finance with wealth management, which is a kind of business it certainly does do.
“They could have copy-pasted what Credit Suisse were doing in shipping, but it seems they did not want to,” said Petrofin managing director Ted Petropoulos.
Nor do the circumstances of the merger create the ideal conditions for a seamless absorption of the shipping portfolio.
UBS, as it has made clear, did not actually want to acquire Credit Suisse and will be peering skeptically into every aspect of its business.
That will not necessarily be a problem in areas where the two banks overlap. In most cases, it can be expected that UBS management will call the shots and its culture will predominate.
But what about a sector — ship finance — where there is seemingly no equivalent pedigree at UBS? There the path forward appears less easy to predict.
UBS’ pronouncements have so far been understandably opaque. On the one hand it has pledged that “strategic global banking businesses [are] to be retained”. In the next breath, the same presentation says “all positions deemed non-core to be moved to a separate unit and exited...”
It’s anyone’s guess in which camp shipping is likely to be shoveled.
“They [UBS] have had no interest in the past and that is a negative starting point from the shipping point of view,” Mr Petropoulos said. “To continue with it would be going outside their risk profile, so I think the chances of the Credit Suisse shipping portfolio surviving as is are not very high. But it is unlikely to suddenly disappear off the face of the earth. What I expect is that it will continue to erode, but at a faster pace. Where owners have existing wealth management relationships with UBS in addition to Credit Suisse, the take-over should be easier.”
That view was largely endorsed by a leading European shipping banker who underlined the conservative nature of UBS. “I guess it will be disposed of,” Lloyd’s List was told. “They have been averse to anything to do with taking risk, and to asset-based finance.”
However, the nature of the Credit Suisse portfolio means this is not a done deal. While there is little official information from the bank about its ship lending policies, multiple sources have said that most of Credit Suisse’s lending has been conditional on cash deposits and investments with the bank.
Furthermore, the shipping clientele is said to be largely blue-chip, significant companies and there are no apparent signs of problems in the portfolio.
If shipping does remain an ongoing business under UBS, one of the reasons is likely to be that the portfolio was too difficult — or too costly — to untangle.
“If something is going to happen, it is not going to happen overnight,” said one client of Credit Suisse. “It will take months and months. But I don’t see that there is necessarily going to be any problem. I don’t think anyone knows what is going to happen. It’s premature — more than premature — to discuss.”
According to Mr Petropoulos, UBS would normally be averse to getting involved in “exotic” sectors. “The trouble is, right now banking stocks are exotic compared with shipping,” he said, adding other ship financing banks would be keen to pick up “good names” from the Credit Suisse portfolio in the event of any reticence towards continuing an active ship lending relationship. “The main beneficiaries in this debacle are likely to be active ship financing banks.”
In the Greek market, if that were to happen it could raise the possibility of a watershed moment since, based on the latest Petrofin data, Greek banks sat directly behind Credit Suisse as the second, third and fourth largest lenders to Greek owners.
Up to now, it was one of the basic tenets of the modern Greek shipping industry that it derived most of its funding from international banks.