UBS-Credit Suisse merger sparks concerns over Switzerland’s banking sector

May 11, 2023 (MLN): The merger of UBS and Credit Suisse, two of Switzerland’s largest banks, has raised many concerns regarding how it will affect jobs and competition in the country’s banking sector.

The Swiss government strongarmed UBS into buying its rival for $3.25 billion after the collapse of three U.S. lenders in March raised concerns about Credit Suisse's own financial health, following a series of scandals in recent years.

The bank’s domestic retail banking division, which provides mortgage loans and business financing in Switzerland, has received little attention despite being its strongest segment.

Credit Suisse's heavy losses were mostly due to the international wealth management and banking divisions.

The Swiss division's turnover only fell by 5% last year, whereas turnover in international wealth management slid by nearly a third, and the investment bank tumbled 54%.

Investors are becoming impatient with the scattered details around the complex integration, as APP reported.

UBS insisted this week that "all options" would be considered for the Swiss activities of the bank, promising to share more details in the coming months.

But investors are anxious to know whether UBS will integrate the Swiss banking division into its own domestic business, sell it, or even split it through a share offering.

Ipek Ozkardeskaya of Swissquote stated that "One of the reasons that support the idea of a spin-off is probably the fact that UBS has gotten too big after swallowing Credit Suisse for the Swiss market,"

Another could be to maximize the Swiss branch potential and to offer Swiss clients an alternative to UBS." he added.

Keeping it as an independent unit appeals to many in Switzerland, particularly as it could prevent mass layoffs in the important banking sector.

Together, the two banks employ 120,000 people worldwide, including 37,000 in Switzerland.

Andreas Venditti, an analyst at asset manager Vontobel said that "Full integration means that UBS would have to take a lot of costs and fire a lot of people at Credit Suisse,"

Credit Suisse itself had considered a partial IPO of its Swiss branch in 2016.

the Foundation Ethos, which represents pension funds in Switzerland stated "We are still in favor of splitting off the Swiss branch," as reported by APP.

Ethos added that this was the best option not only to protect jobs but to avoid concentrating risks in one giant bank.

Venditti says that UBS could "carve out Credit Suisse Switzerland's front office only, (the brand) would survive and the two banks would compete."

Adding that "If in a few years' time, the situation has stabilized then it would be a good time to bring this new smaller Credit Suisse to the market,"

JP Morgan analysts said splitting it off as an independent arm could create a division valued at a minimum of $10bn for UBS.

"We know that a spin-off could unlock value," said Ozkardeskaya.

And it could also help calm jittering investors about the threat of "a giant that became even more giant after the merger," she added.

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