UBS will impose strict restrictions on Credit Suisse’s bankers, including a prohibition on new clients coming from high-risk nations and complex financial products. This is as the company prepares to buy its struggling rival on Monday.
According to sources familiar with the measures, UBS executives drew up a list of almost two dozen “redlines” which prohibit Credit Suisse employees from engaging in a variety of activities as soon as the two banks combine.
Included in the prohibited activities are taking on clients who come from countries like Libya, Russia and Sudan, and launching products without UBS managers’ approval.
To prevent money laundering, Ukrainian politicians and state-owned companies will also be blocked.
Colm Kelleher, UBS chairman, said in a statement last month that he was concerned about “cultural contamination” when it came to hiring Credit Suisse employees. “We will have a very high standard for the people we hire at UBS.”
The UBS compliance department has written the prohibitions to reduce the risks of the transaction. Credit Suisse was saved from bankruptcy three months ago by Swiss authorities.
UBS executives are worried that they will be competing with a bank which has a history of accepting riskier clients and offering them high-risk products. Credit Suisse’s last few years as an independently-owned company were marked by scandals and crises. One internal report stated that these were the result of a “lackadaisical approach to risk”.
UBS and the Swiss government finalised an agreement on Wednesday to provide the bank up to SFr9bn (10bn dollars) to protect them from losses during the rescue. The Swiss government will provide assistance after UBS has covered the first SFr5bn in losses.
UBS had to pass the loss protection agreement before it could complete the takeover.
The list of restrictions, which UBS executives call “red lines”, covers 11 financial risks as well as 12 non-financial ones.
Credit Suisse faces a number of operational risks, including those relating to the use of offices and the distribution of research.
Credit Suisse bankers cannot trade in certain arcane financial instruments, such as Korean derivatives or options on certain quantitative indices, under the new rules.
Credit Suisse suffered a $120 million loss in 2006 on Korean derivatives. This led to the restructuring of its management. The bank continued to trade in the market.
Credit Suisse employees are required to ask UBS executives permission before extending loans of more than 60mn dollars backed by assets like yachts, real estate and ships.
Credit Suisse, as a banker of some of the richest people in the world, has been providing loans for private jets to billionaires, and has also been involved in yacht financing.
Credit Suisse requested that hedge funds and investors destroy documents related to their richest clients’ private jets and yachts after revelations about a securitisation agreement involving loans made to oligarchs, who were sanctioned later.
Credit Suisse staff must request permission from UBS before extending loans to foreign borrowers and to purchase foreign property.
Credit Suisse bankers have been prohibited from taking on clients from certain high-risk countries in order to reduce the risk of money laundering and corruption. They 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.
Credit Suisse sent an internal memo to all employees on Thursday. The memo told them that they should expect new rules on the closing day of the deal, but did not include any details.
UBS and Credit Suisse have declined to comment.
Separately on Thursday, Swiss parliamentarians voted for the creation of a special commission of inquiry to investigate the collapse of Credit Suisse.