Union Bank of Switzerland (UBS) and Swiss Bank Corporation (SBC) have announced a merger that will create the world's second-biggest bank in terms of assets, at the cost of 13,000 jobs and a pre-tax restructuring charge of seven billion Swiss francs (£3.31 billion).
The new bank, to be called United Bank of Switzerland, will also be the world's largest global asset manager, in charge of funds approaching £689 billion. Both banks' shares jumped sharply. In terms of market capitalisation, the new bank will be the fifth-largest in the world.
Nearly a quarter of the banks' 56,000 employees will lose their jobs, with a cut of 7,000 in Switzerland accounting for more than half the reduction. Mr Georges Blum, SBC chairman, said neither of the banks had the individual strength to succeed in the long haul, particularly in comparison with US competitors.
"To defend and build our market share, we need to make enormous investments. Together, our chances of success are significantly greater," he said.
Both acknowledged that Switzerland's banks had lost ground against competition. The merged bank was designed to be a "strong new contender" in international banking.
The new bank aims to raise its net profit to 11 billion Swiss francs and its annual return on equity to 20 per cent by 2002, compared with this year's projected figures of 13 per cent for UBS and 15 per cent for SBC. It expects annual savings of 3.5 billion Swiss francs.
UBS shareholders will own 60 per cent of the merged bank's shares, and its initials survive in the new name, but SBC appears to be in the driving seat. Mr Mathis Cabiallavetta, UBS's chief executive, will be chairman, but Mr Marcel Ospel, his SBC counterpart, will be chief executive. Three of the four core businesses will be headed by SBC executives.
Investment banking activities will be centred on SBC's Warburg Dillon Read subsidiary under its chief executive, Mr Johannes de Gier. Mr Cabiallavetta said: "The overwhelming reduction will come from our side." But he said: "Regardless of where the people come from, the best will be taken."
Mr Ospel said any serious approaches for surplus parts of the UBS investment banking business would be entertained, but such disposals were not part of the banks' strategy.
Mr Cabiallavetta told analysts in London that once the merger was completed, he would not rule out a US investment banking acquisition.
The two banks had talked briefly but inconclusively in 1995. Discussions resumed this summer, then foundered before restarting in mid-October. The willingness of both chairmen - Mr Blum at SBC and UBS's Mr Robert Studer - to retire helped to break the deadlock.
