UBS Group AG (SIX:UBSG) is navigating a significant hurdle in the integration of Credit Suisse (SIX:CSGN)'s domestic business, with the migration of approximately 1.5 million client accounts to UBS's IT infrastructure. The task, notorious for exceeding both timelines and budgets, is part of UBS's broader strategy to achieve over $10 billion in cost savings from the merger. The cost of this technological shift is projected to be between $1 billion and $3 billion, according to those familiar with the matter.
The completion target for this integration process has been set for the end of 2025, but insiders hint that this timeline may be overly optimistic. The scale of this IT integration is unprecedented in recent banking history, with the only comparable example being Deutsche Bank (ETR:DBKGn)'s problematic integration of Postbank AG following its full acquisition in 2010.
This technological challenge highlights one of the primary difficulties in integrating Credit Suisse after its emergency takeover earlier this year: balancing rising costs with declining revenue from the acquired lender. If UBS can avoid a full revamp of Credit Suisse's domestic systems and clients, costs could remain within the $1 billion range. CEO Sergio Ermotti may be able to limit expenses, thanks in part to UBS's significant IT overhaul investment over the past decade.
However, if smooth integration proves elusive, the cost could surge to $3 billion or more. Full-scale incompatibility would necessitate a complete reprogramming of all supporting technology for consumer loans, mortgages, and other transactions, along with reformatting client data.
The experience of Deutsche Bank provides a cautionary tale. After deciding in 2019 to migrate all client data from Postbank onto its own platform, the bank faced substantial delays and budget overruns, pushing expected savings to the end of 2025, three years behind schedule. Despite recently declaring the migration complete, Deutsche Bank has faced a wave of customer complaints that have sparked regulatory scrutiny.
To avoid similar issues, Ermotti may need to invest heavily in consultants to construct technological bridges between the two banks. A significant portion of the expense involves creating a temporary system to transfer Credit Suisse data onto UBS servers without interrupting customer access to their accounts. This temporary system could be as large as an existing bank's IT framework.
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