UBS names EY for record audit deal

UBS executives have made their decision on the auditing of one of the world’s most profitable banking contracts, opting to retain EY, one of the Big Four firms, following their acquisition of Credit Suisse.

According to insiders, EY, which has been UBS’s external auditor since 1998, will take charge of auditing the expanded bank from 2024. The size of the contract will require EY to deploy staff from other countries to work on the audit.

Meanwhile, PwC, the previous auditor for Credit Suisse, will handle the auditing of the troubled bank’s accounts for 2023.

Although UBS completed its state-orchestrated takeover of Credit Suisse last month, the integration of the business into the broader group is expected to take several years.

Even prior to the merger, the audits of UBS and Credit Suisse were among Europe’s largest in terms of scale. In the previous year, UBS paid EY $70 million in fees, while Credit Suisse paid PwC $90 million—an increase of 10% from the previous year—according to the banks’ annual reports.

While the audit fee for the combined group is anticipated to be lower than the sum of the individual audits, it will still rank among the highest in the global banking industry.

According to data from Ideagen Audit Analytics, HSBC paid PwC $148 million last year, the highest amount among European banks, whereas Barclays paid KPMG £71 million. The three Wall Street giants, Citigroup, JPMorgan Chase, and Goldman Sachs, each paid their auditors between $95 million and $103 million.

EY declined to comment on its retention by UBS but stated, “The size and scale of the global EY financial services audit practice means we are able to access resource and specialist skills from across our network.”

The firm boasts a global staff of 20,000 individuals dedicated to banking audits, and its international operations are more closely integrated than those of its competitors, facilitating the sharing of resources across borders, as noted by an industry insider. Appointment of auditors is subject to shareholder approval.

Despite the reputational damage resulting from its involvement in the Wirecard fraud scandal, EY has continued to secure banking audits. Last year, EY won a portion of BNP Paribas’ €60 million annual audit contract, solidifying its position as the leading financial services audit provider in Europe, according to senior partner Omar Ali.

EY already audits Deutsche Bank, Germany’s largest lender, for which it received €68 million in payment last year. However, it has been barred from bidding for new audits of German-listed companies for two years due to its failures in the Wirecard case.

PwC took over as Credit Suisse’s external auditor from KPMG in 2020. The firm faced scrutiny this year when Credit Suisse had to postpone the publication of its annual report after a last-minute inquiry from the US Securities and Exchange Commission.

Upon the report’s eventual release, just days before Credit Suisse’s collapse in March, it revealed “material weaknesses” in the bank’s internal controls over financial reporting. PwC attributed these issues to the absence of “an effective risk assessment process to identify and analyse the risk of material mis-statements in its consolidated financial statements” by management.

According to three insiders, this matter caused tension between senior Credit Suisse executives and PwC auditors.

Due to conflict of interest regulations, EY will likely have to cease its consulting work for Credit Suisse as it assumes the audit role for the merged business.

Two years ago, Credit Suisse engaged EY to evaluate anti-money laundering procedures within its Asian wealth division following involvement in multiple scandals in the region, including the Malaysian 1MDB embezzlement case.

When questioned about assessing EY’s independence as auditor of the combined UBS-Credit Suisse group, the Swiss Federal Audit Oversight Authority declined to comment, citing ongoing consideration of the matter.