On Breakingviews: Unlike many banks that got into trouble back in 2008, Credit Suisse has flogged much of its prime real estate. That leaves prospective new owner UBS with an expensive and long-lasting rental bill, writes aimeedonnellan
rescued Bear Stearns six months earlier it also took the target’s Manhattan headquarters. At the time JPMorgan boss Jamie Dimon said the deal meant he would save $3 billion because he no longer needed to build a new headquarters. Property also helped prop up government bailouts. Royal Bank of Scotland had 17 billion pounds' worth of property and similar assets when the UK government bailed it out in 2008.
Today there is less real estate underpinning bank values. Credit Suisse sold its main Cabot Square office in London’s Canary Wharf over a decade ago; it now occupies the building under a lease which ends in 2034. Prospective owner UBS rents its new Broadgate campus in London; Deutsche BankThese leases are a hefty liability for any new owner. Credit Suisse’s One Cabot Square building is 550,000 square feet and includes a sprawling trading floor.
Banks like UBS will also find it harder to sub-let excess space. Canary Wharf is already grappling with 15% vacancy rates as demand dwindles, according to Green Street estimates. For buyers preparing to rescue embattled banks, real estate has turned from a dowry to a downer.UBS said on March 19 it had agreed to buy rival Swiss bank Credit Suisse in a shotgun merger arranged by Swiss authorities.
As part of the deal, UBS will take on Credit Suisse’s leases on buildings like One Cabot Square, the bank’s office in London’s Canary Wharf.Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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