UBS is set to impose stricter restrictions on Credit Suisse bankers, including a ban on new clients from high-risk countries and complex financial products, as it prepares to take over its ailing rival starting Monday.
UBS executives have drawn up a list of nearly two dozen “red lines” that have barred Credit Suisse employees from a range of activities since the first day the two banks merged.
Prohibited activities include taking clients from countries such as Libya, Russia, Sudan and Venezuela and launching new products without the approval of UBS managers.
Ukrainian politicians and state-owned enterprises will also be blocked to prevent money laundering
“We’re worried about ‘cultural contamination,'” UBS chief Colm Kelleher said last month of Credit Suisse’s takeover of employees. “We’re going to have an incredibly high bar for who we bring in at UBS.”
The sanctions, written by UBS’s compliance department, are designed to reduce the risk of the transaction, which was planned three months ago by Swiss authorities to save Credit Suisse from collapse.
UBS executives fear they are taking on a bank that has traditionally been more willing to take on riskier clients and give them more equity. Credit Suisse’s last few years as an independent firm were marked by a series of scandals and crises, which an internal report said were the result of a “flawed attitude towards risk”.
UBS finalized a deal with the Swiss government on Wednesday. Government aid will kick in after UBS makes up SFr5bn of losses.
The loss protection agreement was the final hurdle for UBS to overcome before completing the acquisition.
The list of restrictions – which UBS executives have dubbed “red lines” – covers 11 financial risks and 12 non-financial risks.
While many risks are operational – issues such as research distribution and use of offices – other mandates directly affect areas of Credit Suisse’s business.
Under the rules, Credit Suisse bankers cannot trade in various arcane financial products, including Korean derivatives and options on certain quantile indices.
In 2006, Credit Suisse lost $120mn on Korean derivatives, shaking up the unit’s management team. But the bank continues to operate in the market.
Credit Suisse employees must ask UBS executives for permission to extend loans backed by assets such as yachts, ships and more than $60 million in real estate.
As a banker to some of the world’s richest people, Credit Suisse has long provided loans to fund billionaires’ private jet purchases, while it has also dabbled in yacht financing.
Credit Suisse last year asked hedge funds and other investors to destroy documents related to yachts and private jets of its wealthy clients. The Financial Times securitization deal then provided loans to sanctioned oligarchs.
Employees at Credit Suisse’s Swiss bank must ask UBS for permission to make loans to borrowers outside the country and foreign assets.
In order to limit the risk of money laundering, bribery and corruption, Credit Suisse bankers also prevent new clients from being brought in 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. including , Sudan, Tajikistan, Turkmenistan, Uzbekistan, Venezuela, Yemen and Zimbabwe.
Credit Suisse employees were sent a company-wide memo on Thursday that told them to expect new “red lines” on the day the deal closes, though it did not include details of the terms.
UBS and Credit Suisse declined to comment on the rules.
Separately, Swiss lawmakers on Thursday voted to authorize a special parliamentary inquiry into the collapse of Credit Suisse.