S&P drops UBS outlook to negative

S&P said it revised its outlook for UBS Group AG to negative from stable and affirmed its A- rating. The agency also affirmed the group’s operating entities ratings, including UBS AG’s A+ rating.

The outlook revision follows the announcement on Sunday that UBS will acquire Credit Suisse.

“We see material execution risk in integrating CS into UBS given the size and weaker credit profile of CS and particularly the complexity in winding down a large part of CS' investment banking operations. This could mean a weakening of the combined group's competitive position or underperformance against its financial targets because of sizeable restructuring or litigation costs, pressure on revenue capacity, or setbacks in realizing cost savings,” S&P said in a press release.

Additionally, S&P noted, “We recognize UBS' strong track record in delivering its strategic and financial targets. In our base case, we expect UBS will prudently execute and manage the integration, reduction of staff, and wind-down of assets, while effectively limiting tail risk to the capital, risk, and funding profiles. We note that CS' stand-alone creditworthiness is significantly weaker, but we believe that UBS has sufficient downside protection to effectively shield against elevated risks emerging from the acquisition and following integration.”

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