UBS board throws out CS merger proposal

The board of the Union Bank of Switzerland last night unanimously rejected a pounds 32bn merger approach from CS Holding, one of the other two big Swiss banks.

This reprieves a substantial number of jobs in the two banks' operations in London, which together employ 6,500.

It was thought that many hundreds and possibly well over a thousand jobs could have been lost in London if the investment bank subsidiaries had been merged.

The statement from the UBS board made no attempt to conceal the directors' anger with CS Holding's tactics, saying they were taken aback by the bank's demand for a decision in principle ahead of a key shareholders' meeting next Tuesday.

This is the meeting at which Martin Ebner, a dissident shareholder, will try to overturn the appointment of Robert Studer as chairman of UBS.

Swiss analysts now believe rejection could make CS Holding vulnerable to a takeover approach from another bank, such as Deutsche Bank.

But the door to further talks was left slightly ajar when UBS said the negative aspects of the merger plan far outweighed the positive, while conceding there were areas where there could be benefits.

CS Holding, number two in Switzerland after UBS and parent of Credit Suisse and CS First Boston, is not as strongly capitalised as UBS, which is one of the few banks in the world to retain a triple A rating.

The meeting about the plan to create the world's second-biggest bank began at 4.30pm London time but Nikolaus Senn, the UBS chairman, had already dropped strong hints that a rebuff was likely after the approach on 1 April from Rainer Gut, CS Holding's chairman. In Switzerland, it is widely believed that UBS leaked the conversation to undermine support.

Mr Senn and other board members have in the recent past argued that UBS should remain independent and on Wednesday a Swiss newspaper printed an interview with him in which he was highly sceptical about the need for a merger.

If a deal went ahead, the new bank would have been the world's second- largest by size of assets. The combined capitalisation would have been pounds 32bn.

But the likely job losses and other rationalisation costs in Switzerland are thought to have been unacceptably high for UBS because of the degree of overlap between the two businesses. Most analysts agreed that Mr Gut's proposal was a serious attempt to lay the groundwork for some kind of cooperation with UBS, despite political and business difficulties a full merger would face.