ZURICH ― Banking giant UBS on Monday officially merged its Swiss branches with those of Credit Suisse, but huge challenges remain as it begins the massive task of absorbing the clientele of its fallen domestic rival.

In March last year, UBS was strong-armed by the government into taking over Credit Suisse, then Switzerland's second-biggest bank, over fears it would go under following a series of scandals.

The mega-merger between two banks, which both figured among the 30 institutions in the world considered "too big to fail," has created a project of rare complexity.

UBS has successfully completed the first stages of the merger, gradually reassuring skeptical investors, allowing its stock price to soar.

The union was sealed at lightning speed, with the deal finalized within months, but the step-by-step integration process is taking much longer.

The two banks have continued to operate separately, waiting for UBS to tie up the legal merger of the holding companies that oversee the two banks ― something it completed at the end of May.

'Working together'

The official merging of the Swiss entities on July 1 means Credit Suisse and UBS staff will be able to begin "working together," Sabine Keller-Busse, head of UBS's Swiss unit, said in an interview with the Neue Zurcher Zeitung newspaper last month.

The objective, she said, was to significantly reduce the number of branch offices in Switzerland to a combined 194, down from the current 95 Credit Suisse and 190 UBS branches.

Andreas Venditti, an analyst with Swiss investment manager Vontobel, highlighted that until the two banks fully merged, the scope for cost-cutting was limited.

Monday's announcement and other recent milestones opened the way, he said, for UBS to "really start reducing costs substantially."

At the same time, he warned that the technology integration process ahead would not be easy.

"The data on a large number of Credit Suisse clients needs to be transferred to UBS systems," Venditti pointed out.

"This is a hugely complex challenge. It represents a lot of data, with the history of each client that can go back for decades."

This IT integration project has been estimated to last until the end of 2026.

UBS chief Sergio Ermotti has said no more than 10 percent of Credit Suisse's existing data applications will be preserved.

No simple solution

According to Venditti, "UBS is progressing well" in all areas that the bank can control.

But, he cautioned, it is also facing regulatory hurdles which are "not in their own hands."

In particular, it faces numerous disputes accumulated by Credit Suisse before the merger, as well as those sparked by the mega-merger itself.

While UBS has already made progress on the dispute front, Venditti stressed that "some will be more challenging and might take more time to resolve than others."

The other big challenge, observers say, is looming tighter regulation for Switzerland's banking sector.

In April, the Swiss government unveiled a project aimed at toughening the rules on banks regarding both bonuses and the capital they must set aside to be able to face a crisis.

That announcement came after the International Monetary Fund urged the country to strengthen its financial sector regulation as supervising UBS has become "more challenging" since it absorbed Credit Suisse.

During UBS's general assembly in May, its chairman Colm Kelleher said the bank was "seriously concerned," warning that additional capital requirements especially risked undermining its competitiveness.

Venditti acknowledged that "on the regulatory side, there's no easy solution."

"Otherwise, it would already have been found."

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