Swiss Merger Would Create No. 2 Bank

Union Bank of Switzerland and Swiss Bank Corp. are expected today to announce a merger plan that would create the world’s second-largest bank, with assets of about $600 billion and businesses ranging from retail banking to money management, sources said Sunday.

The two giant banks scheduled a joint news conference in Zurich for this morning, and financial sources in London said the announcement would likely be of a full merger.

“Merger talks between Swiss Bank Corp. and ourselves are taking place,” a senior UBS manager was quoted as telling Switzerland’s SonntagsZeitung newspaper. Similar stories appeared in German and British newspapers, capping nearly a week of speculation on financial markets about some sort of linkup between Switzerland’s second- and third-biggest banks.

The new company, expected to be called United Bank of Switzerland, would be 60% controlled by UBS shareholders and would be run by SBC Chief Executive Marcel Ospel, sources said.

The new bank would be the world’s second-biggest, behind Bank of Tokyo-Mitsubishi Ltd., which has $696 billion in assets, and ahead of current second-largest bank, Deutsche Bank, with $570 billion of assets.

As many as 12,000 of the two banks’ combined 58,000 jobs would be lost worldwide. About 7,000 of those job losses are expected outside Switzerland, with heavy losses expected in London. Union Bank of Switzerland has offices in downtown Los Angeles, but it was unknown Sunday if that office would be affected.

The merger would create the world’s largest money manager, Switzerland’s biggest retail bank and an investment bank that would own S.G. Warburg, a British securities firm, and Dillon Read in the United States.

The merger, which would need shareholder approval, would be one of the largest in history and the latest in a flurry of financial-industry consolidations, though it would be a significantly larger combination.

Last month, Travelers Group Inc. completed a $9.3-billion acquisition of Salomon Inc., for example, and Morgan Stanley Group Inc. and Dean Witter, Discover & Co. in June completed their $11-billion merger. First Union Corp. of the U.S. currently is offering $16.1 billion for CoreStates Financial Corp.

Shares of both Swiss banks rose last week because of the rumors, which focused on two possibilities--either a full-scale merger or a fusion of the domestic retail banking operations of both banks.

SBC shares last week rose 9.3% and UBS shares gained 6.3%--bringing their total gains this year to 76% and 64%, respectively, amid speculation a merger was imminent. UBS and SBC officials dismissed the talk as a “rumor.”

“The [new Swiss] company will have enormous power,” said Hans Kaufmann, an analyst at Bank Julius Baer & Co. in Zurich who helps manage $385 million. Kaufmann last month raised his rating for UBS to “buy” from “hold.”

John Keefe, an independent analyst who follows the financial industry, said the merger would “turn up the pressure on other money center banks to consolidate in order to compete more effectively.”

Switzerland’s banking industry--with one branch for every 2,000 people, twice the U.S. rate--has been ripe for cutbacks, analysts said. Swiss banks have also suffered during a six-year economic slump and shareholders have urged both banks to boost returns on equity, which have averaged less than 7% in the last five years--one-fourth that of some big U.S. banks.

In Switzerland, the new bank would have about 40% of the market. While that would draw Swiss Competition Commission scrutiny, it also would leave room to cut costs. Losses at the Swiss units have held back rising overseas earnings for years.

UBS traditionally pays its annual bonuses in March, so most of that bank’s employees are likely to resist rivals’ job offers at least until then, even though the number of jobs to be cut is high. SBC employees are seen as having more reason to stay because most top executives in the new bank will come from SBC.

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This report includes information from Bloomberg News, Associated Press and Reuters.