UBS sets ‘red line’ for Credit Suisse employees as it completes acquisition

Credit Suisse has imposed tighter restrictions on bankers after UBS completed its acquisition of its ailing rival on Monday, including a ban on new clients from high-risk countries and complex financial products.

According to people with knowledge of the measures, UBS executives have drawn up a list of about two dozen “red lines” that Credit Suisse employees must follow on a wide range of activities from day one of the combined banks. Prohibits from

Prohibited activities include taking clients from countries such as Libya, Russia, Sudan and Venezuela, and launching new products without approval from UBS managers.

Ukrainian politicians and state-owned enterprises will also be blocked to prevent possible money laundering.

“We are concerned about ‘cultural contamination’,” Colm Kelleher, chairman of UBS, told Credit Suisse employees last month. “We’re going to have an incredibly high bar on who to bring into UBS.”

The prohibitions, written by UBS’s compliance department, are designed to reduce the risks involved in the transaction, which was arranged by Swiss authorities three months ago to save Credit Suisse from collapse.

UBS confirmed on Monday morning that it had completed the acquisition. In an open letter, Kelleher and Chief Executive Sergio Ermotti said: “We will never compromise on UBS’s strong culture, conservative risk approach or quality service.”

UBS executives fear they are taking a bank that has traditionally been more willing to accept risky clients and offer them high-stakes products. Credit Suisse’s last few years as an independent company were marked by a series of scandals and crises, which an internal report said were the result of an “indifferent attitude towards risk”.

UBS on Wednesday finalized a deal with the Swiss government that will provide up to SFR9 billion ($10 billion) to protect the bank from losses on hedges. Government aid will begin after UBS covers the first SFr5bn losses.

The loss protection agreement was the final hurdle for UBS before completing the takeover.

The list of sanctions — which UBS executives have named “red lines” — covers 11 financial risks and 12 non-financial risks.

While many risks are ongoing – related to issues such as the delivery of research and the use of offices – other decrees more directly affect areas of Credit Suisse’s business.

Under the rules, Credit Suisse bankers are unable to trade in a range of arcane financial products, including Korean derivatives and options on certain quantitative indices.

In 2006, Credit Suisse lost $120 million on Korean derivatives, which stirred up the unit’s management team. But the bank continues to operate in the market.

Credit Suisse employees must also ask UBS executives for permission to extend loans backed by assets such as yachts, ships and real estate of more than $60 million.

As banker to some of the world’s richest people, Credit Suisse has long provided loans for the purchase of billionaires’ private jets, while it is also involved in yacht finance.

Last year, Credit Suisse asked hedge funds and other investors to destroy documents related to yachts and private jets of its richest clients after the latter sanctioned a securitization deal linked to loans made to oligarchs. Following were the revelations in the Financial Times.

Credit Suisse’s Swiss bank employees must obtain permission from UBS to make loans to borrowers outside the country and to foreign assets.

To limit the risk of money laundering, bribery and corruption, Credit Suisse bankers are also barred from taking on new clients from high-risk countries. These include Afghanistan, Albania, Belarus, Burkina Faso, Democratic Republic of Congo, El Salvador, Eritrea, Ethiopia, Guinea, Haiti, Iraq, Kosovo, Kyrgyzstan, Libya, Moldova, Myanmar, Nicaragua, Palestine, Russia, South Sudan, Sri Lanka. , Sudan, Tajikistan, Turkmenistan, Uzbekistan, Venezuela, Yemen and Zimbabwe.

Credit Suisse employees were sent a company-wide memo on Thursday telling them to expect new “red lines” on the day the deal closed, though did not include details of the rules.

UBS and Credit Suisse declined to comment on the rules.

Separately, Swiss lawmakers voted Thursday to empower a special parliamentary commission to investigate the collapse of Credit Suisse.