SBC and UBS may have to rethink terms

Speculation was mounting last night that Swiss Bank Corporation and Union Bank of Switzerland may be forced to renegotiate the terms of their pounds 36bn merger because of the scale of UBS's trading losses.

UBS is estimated to have made losses of up to pounds 800m last year and is heavily exposed to the collapse in Asian markets. As rumours that the deal will have to be renegotiated swept the market yesterday, shares in both banks fell.

A spokesman for UBS, Gertrud Erismann, insisted that the deal could not be renegotiated. "The merger agreement is signed and cannot be renegotiated," she said, adding that shareholders would be asked to vote on the proposals as they stood early next month.

However, sources within SBC suggested that some form of renegotiation was inevitable, given the scale of the losses.

A London-based Societe Generale trader said: "I would not be surprised if they renegotiated their merger terms, as I've heard they have both made considerable losses in Asia. Both banks seem to be trying to hide these losses within the merger details."

The merger would create the fourth largest bank in the world with assets of pounds 330bn, funds under management worldwide of $920bn, and 56,000 staff. However, it will also entail 3,000 job losses within the two groups' investment banking divisions in London.

Although the chairman of the merged bank will be Mathias Cabiallavetta, president of UBS, the merger is being widely viewed as more of a takeover by SBC. This impression was reinforced earlier this week when the two banks announced 80 senior management positions in London, of which only a quarter were filled by UBS employees.

UBS lost pounds 90m on derivatives trading in the first half of last year but its losses are thought to have escalated dramatically in the second six months, particularly as the meltdown spread among the Tiger economies of East Asia.

The two banks are now looking for a new name for the merged business, having abandoned plans to call it the United Bank of Switzerland. The name was dropped after the discovery that another bank with a similar name already exists.

- Michael Harrison