So long as the fate of CS Switzerland hangs in the balance, there will be speculation and political wrangling. The roles in this drama are clearly defined.
It was made clear several times at UBS's annual general meeting (AGM) on Wednesday that it wants to absorb Credit Suisse as quickly as possible. But never has there been a takeover of an internationally systemically important bank by an equally system-reliant competitor, and getting through those uncharted waters will be a complex exercise in navigation.
Adding to the challenge is resistance to a new banking colossus forming, especially in Switzerland. Accusations are being made in various quarters the combined UBS will dominate the market and elevate itself to a monopoly-like position. UBS chairman Colm Kelleher added to the speculation by not revealing his intentions for the Swiss unit at the AGM. He deflected a shareholder's question by saying what happens to Credit Suisse Switzerland can only be decided once the deal is completed.
Less Choice for Exporters
As long as the fate of Credit Suisse Switzerland hangs in the balance, there is plenty of room for speculation. Bank customers are becoming vocal. Export-oriented companies in particular can only conduct certain business with a major bank. If, with the demise of Credit Suisse, UBS is the only such bank offering such services, competition is likely to suffer considerably.
Monopoly-like conditions are emerging, especially in corporate banking in Switzerland. In trade finance, bank guarantees, and unsecured corporate loans, in particular, the combined market share in Switzerland could be around 70 percent, according to estimates.
Opportunity for International Banks
It is to be expected that international banks or some of the larger Cantonal banks will step in to fill the void when Credit Suisse is gone. But it is unlikely they will be able to hold their own as a real corporate banking counterweight to a bulked-up UBS.
For one thing, such transactions require specific expertise. Second, the stakes are not necessarily the same when competing with such a dominant market player. In the business with multinationals, the combined UBS/CS is most likely to fear a monopoly position, Kelleher explained last week.
Politicians' Hands are Tied
Calls for Credit Suisse to be spun off from its new owner are being heard on the political spectrum. For now, this is often more showmanship than substance ahead of national parliamentary elections, because politicians' hands are tied before final takeover approval. The authorities approved the merger under emergency law, which can only be applied for six months. With that in mind, a spin-off or IPO of the Swiss unit seems to be entirely within UBS's power.
The final word has yet to be uttered. Once the merger has been completed, it is within the realm of legal possibility, and not unlikely, the Competition Commission (Weko) will take a closer look at the newly created paradigm in the Swiss financial industry. According to Article 10 of the Cartel Act (KG), Weko must approve mergers that lead to market dominance and eliminate effective competition.
Finma is Lying Low
In the case of banks, the Swiss Financial Market Supervisory Authority (Finma) takes the place of Weko when it comes to creditor protection. Finma Director Urban Angehrn was rather subdued at Wednesday's media conference when he said «Finma is waiting for the Weko statement. After that, we will assess whether any measures need to be taken.» The authority also has no means of intervening in UBS's strategy, said Finma chair Marlene Amstad.
The Weko cannot simply be ignored and is required to be invited to comment. Accordingly, the commission, with its new president Laura Melusine Baudenbacher, could become the universal bank's major adversary in the poker game over the final integration of Credit Suisse.
Delicate Balancing Act
The merger of Bankgesellschaft and Bankverein from which UBS was formed in 1998 was already a similar balancing act in terms of competition law, recalled Eugen Haltiner.
Even before the announcement of the emergency rescue of Credit Suisse, the former Finma chairman was convinced in an interview with «CH Media» (in German, behind paywall) that Weko would have weighty reservations because of the market-dominating position of both institutions.
Tough List of Sanctions
This opinion is shared by law professor Peter V. Kunz who said that between this fall and next spring, Weko could determine competition is lacking in Switzerland.
In the event of such a case, the commission has hefty sanctioning powers, ranging from a hefty fine for UBS to the spin-off of entire divisions of the new bank, Kunz told finews.com.
Final Say From the National Government
However, the Weko could again be put on a short leash by politicians in the last instance. Article 11 of the Cartel Act gives the Federal Council authority to approve mergers previously prohibited by Weko upon request «if they are necessary in exceptional cases to realize overriding public interests.»
The provision has never been applied, but if political pressure for a spin-off of Credit Suisse Switzerland mounts, the Federal Council could be forced to show its hand. In such an extreme case, political primacy of politics applies to this power play. UBS's well-connected new CEO Sergio Ermotti will have to use his contacts in the Federal Council sparingly and with caution.
