Credit Suisse’s Key CLO Unit Is Expanding After UBS Takeover

Even as UBS Group AG plans extensive job cuts for Credit Suisse’s workforce, there’s at least one place where it’s growing: the business of buying leveraged loans and bundling them into bonds.

(Bloomberg) — Even as UBS Group AG plans extensive job cuts for Credit Suisse’s workforce, there’s at least one place where it’s growing: the business of buying leveraged loans and bundling them into bonds.  

The bank is looking to bring on professionals including credit analysts for the collateralized loan obligation team in its asset management unit, according to people with knowledge of the matter. It’s also worked to keep key staff in the business, the people said. 

The Swiss bank earlier this year negotiated to retain John Popp, CSAM’s global head and chief investment officer of its Credit Investments Group, which focuses on high yield credit, according to people with knowledge of the matter. Popp effectively oversees the CLO group, and will join the investment management team at UBS Asset Management, reporting to Barry Gill, head of investments at the UBS unit, according to two of the people.  

A spokesperson for UBS declined to comment. 

The CLO business generates relatively high fee income and is viewed as a key part of CSAM, the people said. It is one of the biggest managers of the vehicles, and Credit Suisse’s CLOs fund at cheaper rates than some other issuers, signaling the manager is viewed as high quality. 

UBS had little CLO management business to speak of, and its purchase of Credit Suisse Group last month in a government-brokered deal allowed it to become a key player in the market, fast. UBS said in May that it expected to post a $38 billion gain from the takeover of Credit Suisse as a whole, stemming from the low price it was paying for the company.

As UBS hires in CSAM’s CLO business, it’s slashing jobs elsewhere in the firm. The company plans three rounds of job cuts this year among its staff of 45,000, with the first by the end of July, and two more tentatively planned for September and October, Bloomberg reported in June. UBS is looking to maintain its strategy of having a smaller investment bank that uses less capital.

Read more: UBS Preparing to Cut Over Half of Credit Suisse Workforce

One Credit Suisse group that has seen job cuts is the investment banking unit that helps other CLO managers put together deals. Structuring the vehicles is a riskier business than managing them, because if deals are delayed or fall apart, the bank that is structuring the transaction can be stuck holding onto assets and potentially take losses. 

The CSAM CLO group in June completed a type of refinancing known as a reset in the US and in May issued a new deal in Europe, according to data compiled by Bloomberg. And it has remained actively engaged in the leveraged loan market, for example as one of the leading lenders in the restructuring of garden furniture maker’s Keter’s €1.2 billion loan. 

CLO managers typically charge around 0.3% to 0.5% of the value of the underlying loans, plus bonuses, a stream of revenue that is often locked in for six or seven years. One factor that helps improve the profitability of CSAM’s CLOs is their relatively low funding costs: In March, CSAM sold a traditional CLO whose AAA rated portion, the last to absorb losses from the portfolio, yielded 185 basis points more than the benchmark. Others around the same time were paying as much as 220 basis points. 

Last year Credit Suisse considered selling CSAM and began a sale process for the US operations there, Bloomberg previously reported. 

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