The struggle between Bern and the 5 trillion bank

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The enthusiasm is palpable in the magnificent headquarters of big bank UBS. The eyes of the employees, the glow of the chandeliers – somehow everything shines brighter. It is the fifth day after the merger of the century, and it is gradually becoming clear what has just emerged – a new Swiss megabank.

All matters come together at Bahnhofstrasse 46 in Zurich, just meters from the Paradeplatz. CEO Ralph Hamers (56) and Chairman Colm Kelleher (65) reside in their honorable offices here. It is the new, undisputed powerhouse in the Swiss financial centre.

UBS has long been one of the largest banks on the planet. Now it’s growing again: it will manage over five trillion dollars of client funds.

A bargain called Credit Suisse

With the merger of Credit Suisse, Kelleher, Hamers and Co. led the international financial elite. The bank doesn’t have to pay almost anything for the super booster that got them there – CS shareholders will get three billion francs of shares.

Anyone speaking to senior UBS executives gets the impression that the bank has made the deal of the century. While those responsible are worried that the prestigious CS must be rescued, they do not hide the fact that they have high hopes for the deal.

“We can finally attack the Americans and from Switzerland,” says a senior man in an interview with SonntagsBlick. Until now, European financial centers have always complained that they don’t have a real chance against the Americans because their banks are too big. Now the situation is different, according to an insider: “This is a unique opportunity!”

Those responsible claim that UBS wants to continue the conservative risk culture of recent years. So it seems that the resizing of CS investment banking has already been decided. Yet the enthusiasm for growth that can be felt in UBS should arouse suspicion in Bern.

Just this week, the parties have outdone each other with ideas on how to tame the new megabank. The SP is demanding a salary cap at systemically important banks, compensation for the de facto government guarantee, and 20 percent fixed capital.

Until recently, something like this was seen as a radical leftist demand. Now you hear them from ordinary people. “It needs an equity ratio of 20 percent,” Mitte President Gerhard Pfister said in an interview with Sunday Blick.

The idea of ​​a separate banking system, a division between the commercial bank and the investment area is on everyone’s lips again. It’s not just the SP and Greens, but the SVP as well. And the FDP created a sensation with its demand to maintain the CS local area as an independent bank.

Despite billions of dollars in state aid: UBS does not want to be dictated to itself

Finance Minister Karin Keller-Sutter, 59, who conceived the UBS coup, watches with concern. “It would be extremely risky to jeopardize the negotiated takeover with new terms and spoil it at this stage,” he warned in an interview with “NZZ” yesterday.

Regulatory ideas are certainly not well received at UBS. From conversations with senior executives, it’s clear that there is no desire to let the bank dictate what should happen to purchased CS – with or without billions of dollars of indirect government assistance.

“A lot of it is campaign bullshit from politicians who have no idea about banking,” says one. The bank predicts that the takeover will end until the politicians decide something.

UBS wants to complete the merger at record speed. The finalization of the takeover should occur within a few weeks. The Credit Suisse brand will likely stay for another three or four years, but then it will disappear. UBS is reportedly considering it a much worse option, though scenarios that lead to a later split are also being studied.

Those around the big bank also argue that the CS merger could bring competition in the Swiss financial center to a halt. A document circulating this week calculates: “Cantonal banks have 38 percent market share in the mortgage sector, Raiffeisen banks 18 percent, and combined UBS/CS 27 percent.”

However, when it comes to customer deposits, cantonal banks have a market share of 33 percent, Raiffeisen 20 percent and the new megabank 26 percent – even before possible cash outflows as a result of the merger.

The comparison with the 24 cantonal banks is erroneous because they are independent and often benefit from the unlimited government guarantee that the respective cantons have.

Whether the market power of the new UBS will be an issue in Switzerland is actually debatable. As the interviews with industry representatives show, domestic banks do not see any danger, on the contrary, they hope to gain new private and corporate customers as a result of the big merger.

But surprising signals can also be heard from the industry. Martin Hirzel (53), president of the Swissmem association, whose member companies employ more than 325,000 people, says in an interview with SonntagsBlick that CS’ failure is easily overcome: “There is no danger to Switzerland as a workplace.”

However, there are also deals with corporate clients where the new UBS has an overwhelming market dominance. Financial center experts estimate the market share of unsecured corporate loans at 70 percent. Market share for companies in trade finance and bank guarantees is likely to be just as high.

An analysis by the Competition Commission (Weko) should bring clarity. It plays only a secondary role in the CS takeover because, according to the Cartel Act, the Financial Market Authority (Finma) takes the lead in emergency mergers of banks.

Still, ComCo will analyze which business areas the new UBS can dominate. “Finma then has to decide what conclusions to draw from this,” says Weko Director Patrik Ducrey (59).

Switzerland’s new XXL bank

However, outright resistance to the new UBS is unlikely due to competition law, but rather because of its size: XXL bank’s total assets are twice the size of Switzerland’s annual gross domestic product.

According to Bernlian professor of economics Aymo Brunetti (60), the “too big to fail” problem has become even more acute with the new UBS – especially since we can’t just repeat the procedure we’ve now chosen because there’s no other choice. now a major Swiss bank that UBS can take over in an emergency.”

Brunetti calls for a detailed analysis of why “too big to fail” mechanisms are not implemented in CS and whether there is any realistic possibility for Swiss authorities to accept a systemically important bank’s solution in different crisis scenarios.

“If you already conclude that it’s almost never going to happen, then we have to think in a whole new way,” says Brunetti, who led the expert group on the development of the “Too big to fail” framework after 2008. Financial Crisis.

In UBS, this problem is considered a trivial one. Chairman Kelleher said last Sunday that UBS’ business model is wealth management, and that the size of a bank says nothing about its stability. He receives valuable support from National Bank Governor Thomas Jordan (60), who also puts the risks to the stability of the Swiss financial system into perspective. “A bank may be big, but the risks may be limited,” Jordan told the media on Thursday.

It is also interesting to look back in this context: in 2007, before the financial crisis broke out, the combined assets of the two major banks were around CHF 3,600 billion. It was 2300 billion in UBS alone. At the end of 2022, the combined assets of UBS and CS were “only” around CHF 1,500 billion. In other words: the new UBS may be big, but in the 1990s it was much more in danger of being too big to fail, especially since Swiss GDP has grown by 30 percent since then.

For now, UBS has other priorities: it must spread power, maintain stability and prevent international competition from chasing the best employees and customers.

UBS wealth manager Iqbal Khan (47) in CS until 2019 is said to be traveling the world this week to keep people on track. According to a Bloomberg report, Khan tried to persuade CS bankers in Dubai, Doha and Hong Kong to stay on board at least until the takeover is complete. UBS is ready to establish appropriate incentives.

The task of bringing two banks together with their different cultures may be more difficult today than some UBS executives think. There will probably be moments when things don’t shine as beautifully as the chandeliers at headquarters.

Source :Blick