MOODY'S CONFIRMS RATINGS OF UNION BANK OF SWITZERLAND (SENIOR AT Aaa, FINANCIAL STRENGTH AT A) AND PLACES ON REVIEW FOR POSSIBLE UPGRADE RATINGS OF SWISS BANK CORPORATION (SENIOR AT Aa1, FINANCIAL STRENGTH AT B+) FOLLOWING THE BANKS' MERGER ANNOUNCEMENT
New York, 12-08-97 -- Moody's Investor Service confirmed the ratings of Union Bank of Switzerland (senior at Aaa, financial strength at A) and placed on review for possible upgrade the ratings for long-term debt of Swiss Bank Corporation (senior at Aa1, financial strength at B+). Moody's said that these actions reflect the conclusion that, upon consummation of the merger, the combined entity would be rated Aaa. The rating actions follow the announcement that the two banks intend to merge in a stock-for-stock transaction.
In confirming UBS's top credit ratings, Moody's said that the group resulting from the planned merger -- to be called United Bank of Switzerland --should be able to preserve the very strong business and financial fundamentals that characterize the existing bank, including ample economic capitalization. At the same time, if post-merger synergies are successful in time -- both in the Swiss banking market, which is characterized by very low profitability, and globally -- the merged banking group could strengthen its earning power to a level closer to that of its more profitable global peers. In this context, the rating agency noted the good track record of both banks in expanding their global franchises -- UBS more through organic growth, SBC more through acquisitions -- while at the same time maintaining healthy risk profiles and strong fundamentals.
The banks' announcement to merge also mentions a probable restructuring cost of approximately SF 7 billion and, as a result, both UBS and SBC are likely to report net losses in 1997. However, Moody's said that it views these losses as one-time adjustments that do not reflect a deterioration in the banking group's true earning power. (Moody's said that this approach is consistent with its view of the special provisioning charges taken by the large Swiss banks one year ago, which did not affect their economic profitability and creditworthiness in spite of the accounting net losses declared for 1996).
At the same time, Moody's added that the outlook for UBS's top ratings, while no longer negative, remains cautious, owing to the very difficult challenge facing the two banks in realizing post-merger efficiencies to their full extent. This may prove to be a difficult task especially in the retail banking market in Switzerland, where both UBS and SBC have extensive branch networks. Like elsewhere in Europe, extensive rationalization of large back-office operations and especially of branch networks, notably by large healthy banks seeking to boost further shareholder returns, is difficult both politically and socially. The review of SBC's ratings will also focus on these aspects.
The following ratings are confirmed:
Union Bank of Switzerland - Aaa senior, Aaa counterparty, Aa1 subordinated, Aaa/Prime-1 bank deposits, A financial strength, Prime-1 commercial paper
Union Bank of Switzerland, London Branch - Aaa senior, Aa1 subordinated
Union Bank of Switzerland, New York Branch - Aa1 subordinated
Union Bank of Switzerland Finance N.V. - Aaa senior, Prime-1 commercial paper
UBS Inc. - "aaa" preferred stock
UBS (Finance) Delaware) Inc. - Aaa senior, Prime-1 commercial paper
UBS Australia Limited - Aaa senior, Prime-1 commercial paper
UBS (Trust & Banking) Limited - Aa1 counterparty, Aa1/Prime-1 bank deposits, C financial strength
Swiss Bank Corporation - Prime-1 bank deposits, Prime-1 commercial paper
Swiss Bank Corporation, New York Branch - Prime-1 commercial paper
Swiss Bank Corporation Finance (Delaware) Inc. - Prime-1 commercial paper
SBC Finance (Cayman Islands) Ltd. - Prime-1 commercial paper
SBC Australia Limited - Prime-1 commercial paper
Banca della Svizzera Italiana - Prime-1 bank deposits
The following ratings are on review for possible upgrade:
Swiss Bank Corporation - Aa1 senior, Aa2 subordinated, Aa1 bank deposits, B+ financial strength
Swiss Bank Corporation, Jersey Branch - Aa1 senior, Aa2 subordinated
Swiss Bank Corporation, New York Branch - Aa1 senior, Aa2 subordinated
SBC Finance (Cayman Islands) Ltd. - Aa1 senior, Aa2 subordinated
SBC Australia Limited - Aa1 senior, Aa2 subordinated
Banca della Svizzera Italiana - Aa3 subordinated, Aa2 bank deposits, C+ financial strength
Union Bank of Switzerland is headquartered in Zurich and had consolidated assets of SF 515 billion (approximately US$ 353 billion) at June 30, 1997.
Swiss Bank Corporation , headquartered in Basel, had total assets of SF 408 billion (US$ 280 billion) at June 30, 1997.
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