UBS Finds Credit Suisse’s China Venture Tough to Unload

Cathy Chan and Ambereen Choudhury
·4 min read

(Bloomberg) -- Nearly two decades after UBS Group AG rushed to set up an investment banking franchise in China, it has two of them — and is finding subdued interest from potential bidders for the one it doesn’t want.

Most Read from Bloomberg

The Swiss giant, which inherited the second platform during last year’s emergency takeover of Credit Suisse, received a non-binding offer from market maker Citadel Securities LLC and at least one other bid from a mainland Chinese firm, according to people familiar with the matter.

That’s hardly the frenzy such a rare auction could have ignited a few years ago, when the world’s second-largest economy was charting robust growth and global banks were clamoring for outposts there. Instead, the shallow pool of suitors signals UBS may struggle to lock in a price as high as the $326 million valuation Credit Suisse assigned to the unit in 2022.

Any buyer should look closely at the mounting geopolitical and regulatory risks of doing business there, said Isaac Stone Fish, founder of Strategy Risks in New York, which specializes in corporate relationships with China.

“One can certainly understand and sympathize with foreign banks’ decision to pull back from their investments,” he said. “Or at the very least, to be taking a wait-and-see approach.”

The fragile outlook for China’s economy, heightened geopolitical tensions and a growing wall of regulations in the name of national security are leading international investment banks to dial back their ambitions. That’s a much different environment from just about 16 months ago when Credit Suisse agreed to buy the rest of the joint venture known as Credit Suisse Securities (China) at one of the highest figures ever assigned to such a platform in the country.

Credit Suisse collapsed last March before seeing through the agreement to buy the rest of the venture from local partner Founder Securities. The deal ultimately fell apart, according to people with knowledge of the situation.

Initially, UBS expected to draw offers of about 2 billion yuan ($280 million) and hoped to identify the winning buyer by the end of last year, according to people with direct knowledge matter who asked not to be named discussing the confidential process. Citadel Securities late last month put in a bid in the range of 1.5 billion yuan to 2 billion yuan, while potential suitors such as Warburg Pincus ultimately passed on the opportunity, said the people.

The process may now drag on until the end of 2024, and any winning bidder would still have to obtain a variety of approvals from authorities in China to complete a deal.

If no deal is reached, UBS faces the prospect of shutting the franchise, potentially affecting what’s left — a scenario that hasn’t been publicly discussed. The firm had a 230-person workforce at the end of 2022, according to its annual report.

UBS last year dismissed the entire Credit Suisse wealth team on the Chinese mainland.

A spokesperson for Zurich-based UBS declined to comment.

UBS also owns about two-thirds of a joint venture in China with an entity of the Beijing government and plans to grow that business.

The $160 million that Credit Suisse agreed to pay for the rest of the joint venture awarded the business a value more than double what JPMorgan Chase & Co. had set for its own joint venture the prior year. Yet Credit Suisse’s platform generated a larger loss in 2022 than any other Sino-foreign brokerage joint venture.

Reality Checks

Some dealmakers were irked, privately arguing the that money earmarked for the takeover would be better spent shoring up the franchise, potentially funding bonuses to stem departures, the people said.

Credit Suisse isn’t the only global bank facing a reality check in China.

JPMorgan has said its expansion in the country is taking longer than expected. Goldman Sachs Group Inc. and Morgan Stanley are scaling back ambitions and profit goals there amid deteriorating geopolitical tensions and President Xi Jinping’s willingness to sacrifice economic priorities for security concerns, Bloomberg News has reported.

Nomura Holdings Inc. has been overhauling its China business after losses there snowballed, reflecting setbacks to plans by Japan’s biggest brokerage to expand on the mainland. Meanwhile, Standard Chartered Plc highlighted the financial risks emerging on the mainland in October, with the declining value of its stake in China Bohai Bank and exposure to real estate hitting the lender with charges of more than $800 million.

Global banks have long hoped to capitalize on China by acting as a bridge from the mainland to the rest of the financial system. The question is whether China continues to decouple and stays that way, said Tom Kirchmaier, professor at the Centre for Economic Performance at the London School of Economics.

“If you see it as permanent, like I do, then there would be no incentive for any foreign firm to enter the market, and hence to buy the operation of Credit Suisse,” he said. “The only potential buyer would be local, who in my opinion would have little incentive to buy the operation of a foreign company. They could just hire their staff.”

--With assistance from Vinicy Chan and Manuel Baigorri.

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.