In the eyes of Finma, the merger of UBS and CS has little impact on competition. However, in September 2023, the Competition Commission (Weko) still had serious concerns. The blank check could even weaken Finma's position as a supervisory authority. A critical evaluation.

Without any conditions, stipulations, or further reviews. The Swiss Financial Market Supervisory Authority (Finma) issued an unconditional approval for the merger of UBS and Credit Suisse (which is essentially UBS's acquisition of CS) from an antitrust perspective on Wednesday.

In the rescue operation led by the Swiss Federal Council that was supported by the Swiss National Bank (SNB) in March 2023, Finma also assumed the role of a competition regulator, side-lining the Competition Commission (Weko) — the authority usually responsible for this oversight.

State-Driven Forced Marriage

On the one hand, Finma’s decision to conclude the antitrust proceedings without conditions for UBS is understandable, yet it is also noteworthy.

Understandable, because authorities viewed UBS's acquisition of CS as the best way to mitigate the financial crisis and protect both the Swiss financial sector and international financial markets. Consequently, the authorities facilitated this state-driven (and somewhat forced) merger with extraordinary measures, including a favorable purchase price, extensive liquidity commitments, guarantees, and the declaration of the CS Additional Tier-1 bonds as worthless—a matter that remains unresolved in Switzerland.

Clean Conclusion

Given the circumstances, it comes as no surprise that the authorities, having done everything possible to ensure UBS's acquisition of the failing CS for the country's and global financial system’s sake, would not penalize UBS for it over a year later. Additionally, it is conceivable that Finma wanted to divest itself of the unusual and additional burden of acting as a competition regulator by closing the proceedings cleanly. 

From now on, Finma can refocus entirely on its traditional role. «Finma will continue to closely monitor the integration of CS into UBS from its supervisory perspective,» the authority explicitly stated in its communication on concluding the proceedings.

No Impact on Competition?

On the other hand, the unqualified approval is remarkable, considering it involves the merger of Switzerland's two largest banks. Can this really have no impact on competition? Even Finma acknowledges that «UBS has strengthened its market position in certain segments.» Weko was allowed to support the process, meaning Finma based its decision on Weko's market research and opinions.

Although Weko was initially sidelined during the merger, it was later permitted to express its concerns. In its extensive statement dated September 25, 2023, Weko's recommendations were organized by banking sector. For retail banking, competition generally exists, but Weko advised the price monitor to keep an eye on developments.

Weko’s Major Concerns

In asset management, the merger of the two largest providers would lead to market concentration and weaken competition. Therefore, Weko recommended that Finma specifically monitor prices for global custody services (for institutional investors with investments in various countries) and report any anomalies to the price monitor.

In corporate banking, Weko noted that there are currently no full-fledged alternatives for various customer segments other than the merged UBS. Weko’s recommendations, directed to both Finma and SNB, include overseeing prices, fees, and margins in corporate lending, export financing, international payments, and Swiss franc bonds, and working with the price monitor in case of irregularities.

Recommendations for Finma, SNB, the Price Monitor, and Legislators

Additionally, Weko suggested that Finma and SNB scrutinize the fees and prices of joint financial market infrastructure projects for competitive distortions. Weko also recommended that Finma and legislators encourage the entry of foreign banks to stimulate competition, particularly by expediting the approval process.

Weko’s advice indicates serious concerns in the fall of 2023 about competition in various key markets post-merger. It is surprising that, after Weko's extensive review supported by Finma, none of these concerns seem to have had a significant impact.

Weko's Response in the 1998 Merger

Older generations may recall the 1998 merger of «Schweizerischer Bankverein» and «Schweizerische Bankgesellschaft» to form UBS. Weko imposed several conditions to protect competition, even though CS was then a highly active competitor. UBS had to sell 26 branches, with 18 in economically sensitive regions.

A Voluntary Merger Rebuffed by Authorities

Had UBS and CS voluntarily merged a few years ago, Finma and SNB would likely have resisted vehemently, emphasizing the enormous risks to financial stability, and Weko would have worried about market competition. The opposition would have been significant. In 2020, finews.ch speculated that such a merger would face interminable delays for regulatory approvals in all relevant markets.

A Serious Suggestive Question

Today, this new financial giant exists, created with substantial support from the authorities. Although opinions vary on the potential risks to financial stability, CEO Sergio Ermotti emphasizes UBS’s strengths, while the Swiss Federal Council, the Federal Department of Finance, FINMA, and SNB push for stricter capital requirements.

Even if FINMA's conclusion that the merger does not significantly hinder competition is understandable, it raises a critical and possibly uncomfortable question for the supervisory authority: If the new UBS poses no threat to market competition, could it also represent a lesser threat to the financial system than previously feared?