UBS is imposing tough restrictions on Credit Suisse bankers, including banning new clients from high-risk countries and on complex financial products as it prepares to take over its ailing rival early Monday.
UBS executives have drawn up a list of nearly two dozen “red lines” that prevent Credit Suisse employees from engaging in a range of activities from the first day the two banks merge, according to people familiar with the procedures.
Prohibited activities include dealing with customers from countries such as Libya, Russia, Sudan and Venezuela and launching new products without the approval of UBS managers.
Ukrainian politicians and state-owned companies will also be banned to prevent possible money laundering
“We’re worried about ‘cultural pollution’,” UBS chief Colm Kelleher said last month about taking on employees at Credit Suisse. “We’re going to have an incredibly high bar for who we bring to UBS.”
The ban, written by UBS’s compliance department, is designed to reduce the risks of the deal, which Swiss authorities orchestrated three months ago to save Credit Suisse from collapse.
UBS executives fear they are dealing with a bank that has traditionally been more willing to accept risky clients and offer them risky products. Credit Suisse’s last few years as an independent company have been marked by a series of scandals and crises, which one internal report said were the result of its “unwise attitude to risk”.
UBS finalized an agreement with the Swiss government on Wednesday that will provide the bank with up to 9 billion Swiss francs ($10 billion) to protect it from losses in the bailout. The government aid will begin after UBS covers the first CHF5 billion in losses.
The loss protection agreement was the final hurdle for UBS to clear before completing the acquisition.
The list of restrictions — dubbed “red lines” by UBS executives — covers 11 financial risks and 12 non-financial risks.
While many of the risks are operational – on issues such as distribution of research and use of offices – other decrees affect Credit Suisse’s areas of business more directly.
Under the rules, Credit Suisse bankers cannot trade in a range of obscure financial products, including Korean derivatives and options on certain quantitative indexes.
In 2006, Credit Suisse lost $120 million in Korean derivatives, which led to a change in the unit’s management team. But the bank continued to operate in the market.
Credit Suisse employees must also ask UBS executives for permission to extend loans backed by assets such as yachts, ships and real estate worth more than $60 million.
As banker to some of the world’s richest people, Credit Suisse has long made loans to fund billionaires’ purchases of private jets, while also participating in yacht financing.
Last year, Credit Suisse told hedge funds and other investors to destroy documents relating to yachts and private jets owned by its wealthiest clients after revelations in the Financial Times of a securitization deal involving loans it had made to subsequently sanctioned oligarchs.
Employees at Credit Suisse must request permission from UBS to make loans to borrowers abroad and to foreign property.
In order to reduce the risks of money laundering, bribery and corruption, Credit Suisse bankers are also prohibited from bringing in new clients from a range of high-risk countries. These include Afghanistan, Albania, Belarus, Burkina Faso, Democratic Republic of the 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 and Zimbabwe.
A company-wide memo was sent to Credit Suisse employees on Thursday, telling them to expect new “red lines” on the day the deal closes, though details of the rules were not included.
UBS and Credit Suisse declined to comment on the rules.
Separately, Swiss parliamentarians voted on Thursday to empower a special parliamentary commission to investigate the downfall of Credit Suisse.
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