Page 1 of 3

UBS was so sure it had won that it had celebratory champagne cooling. But then Credit Suisse stole a march on its larger rival – a victory which set up today's face-off between the two Swiss banking giants. 

Twenty-five years ago, Credit Suisse took over Volksbank, then Switzerland's fourth-largest bank. The smaller lender was vulnerable after becoming ensnared in the collapse of the housing bubble in the 1990s. 

The news followed an artful and bitter takeover battle between two titans, which reads to their rivalry today. Volksbank was also the starting shot of a years-long period of consolidation among Swiss banks, a full five years before UBS' historic mega-deal with Swiss Bank Corp., as finews.asia reported last month.

Both UBS' and Credit Suisse's global standing in private banking and investment banking have their roots in the shake-out to hit Swiss banking in the 1990s.

Army Buddies

Volksbank was one of Switzerland's largest banks, but considerably lagged Credit Suisse, Bank Corporation and Union Bank of Switzerland. The Bern-based lender also had a big housing bubble problem: the bank took heavy write-downs of its lending book. Because, unlike other firms, Volksbank didn't have adequate reserves, the bank's crisis quickly became one of survival – through a deal.

The bank already had ties to UBS because their respective operating chiefs, Rolf Beeler and Robert Studer, knew each other from military service, then a networking venue for Switzerland's business elite. A deal between the two would have vaulted UBS into first place among Swiss banks, by a wide margin. 

Paradeplatz Lags

UBS' competitors wanted to avoid this at any cost: for Credit Suisse, Volksbank would mean a quantum leap forward, within striking distance of its larger rival.

«The acquisition makes sense if Paradeplatz's finance firms don't want to lose their shot as the nation's largest banks,» then-chairman Rainer E. Gut said. If this sounds astounding today, where UBS and Credit Suisse hold sway over hundreds of far smaller banks, it was perfectly logical then, when Swiss banking was highly fragmented, with powerful regional lenders challenging Paradeplatz's dominance.