EY Secures Lucrative Audit Contract for UBS Following Credit Suisse Takeover

In a significant move, executives at UBS have chosen EY as the auditor for one of the world's most lucrative banking audit contracts.

This decision comes after UBS's takeover of Credit Suisse, and EY, which has served as UBS's external auditor since 1998, will continue in this role to audit the enlarged bank from 2024. The size of the contract is substantial, requiring EY to deploy staff from other countries to effectively handle the audit.

Meanwhile, PwC, the former auditor of Credit Suisse, will assume the responsibility of auditing the accounts for Credit Suisse in 2023. The completion of UBS's state-orchestrated takeover of Credit Suisse took place recently, but integrating the two entities within the wider group is expected to be a multi-year process.

Both UBS and Credit Suisse were already subject to some of the largest audits in Europe individually. Last year, UBS paid EY $70 million in fees, while Credit Suisse paid PwC $90 million, representing a 10% increase from the previous year, according to the banks' annual reports. Although the audit fee for the combined group is anticipated to be lower than the sum of the standalone audits, it will still rank among the highest in the global banking sector.

EY's selection as the auditor for UBS showcases the strength of its global financial services audit practice, which boasts a workforce of 20,000 banking audit professionals worldwide. Notably, EY's international operations are closely integrated, allowing for the efficient sharing of resources and specialized skills across borders. Despite the reputational damage stemming from its involvement in the Wirecard fraud scandal in 2020, EY has managed to secure significant banking audit contracts, including Deutsche Bank and BNP Paribas.

The decision to retain EY as the auditor for UBS raises questions about the firm's independence, particularly due to its existing consulting work for Credit Suisse. To comply with conflict of interest rules, EY may have to terminate its consulting engagements with Credit Suisse as it assumes the audit role for the combined UBS-Credit Suisse group.

While EY's retention as UBS's auditor signals continuity, PwC's role as Credit Suisse's external auditor has garnered attention. Earlier this year, the publication of Credit Suisse's annual report was delayed following a last-minute query from the US Securities and Exchange Commission. The report revealed "material weaknesses" in the bank's internal controls over financial reporting, highlighting issues in risk assessment processes. This situation created tensions between senior Credit Suisse executives and PwC auditors.

Looking ahead, the focus will be on a meeting of China's ruling politburo scheduled for this month. This gathering is expected to discuss potential additional support measures for the country's economy in light of the recent economic challenges and slowdown.

Following the release of the economic data, shares in China experienced a sell-off, with the CSI 300 index of Shanghai- and Shenzhen-listed stocks declining by 1.1% in the morning session.

Additionally, the renminbi fell 0.3% against the dollar, reflecting concerns about the economic conditions.

In conclusion, EY's selection as the auditor for UBS and the retention of PwC for Credit Suisse's audit underscore the significance of these banking institutions. The audit fees involved are substantial, and the outcome of these audits will have implications for the overall financial landscape. The focus now shifts to the integration of the two banks and potential support measures that may be discussed in the upcoming politburo meeting in China.

By fLEXI tEAM