GENEVA: UBS’ emergency takeover of its troubled Swiss rival Credit Suisse, with significant backing and arm-twisting from Bern, sparked fears on Monday (March 20) it could weaken the country’s biggest bank and financial sector as a whole.
Switzerland was in shock after its largest bank agreed under pressure from Swiss authorities to swallow up the second largest for US$3.25 (RM14.57 billion)billion, in what the government insisted was a vital step to prevent economic turmoil from spreading throughout the country and beyond.
Swiss media and politicians alike expressed outrage that one of the country’s oldest and most iconic banking institutions went poof, insisting that despite a string of crises and scandals, it could have been saved.
Swiss authorities faced criticism for reacting too slowly as Credit Suisse – seen as the weakest link in European banking after several years of unrelenting scandals and crises – saw its share price implode last week amid market turbulence over the collapse of two US banks.
Balthasar Glattli, head of the Green Party, which wants new rules for regulating banks like Credit Suisse and UBS that are considered too big to fail, warned on Monday that the new UBS would be “a monster that is too big to bail”.
Thierry Burkart, head of Switzerland’s rightwing Liberals party, meanwhile described Sunday as “a dark day for the Swiss financial sector and for Switzerland as a whole”.
Both of their parties on Monday called for an emergency parliament meeting to discuss the deal, including billions in guarantees and liquidity guaranteed by the government and the central bank.
Parliament told AFP it was looking at holding such a hearing in mid-April.
The Tages-Anzeiger daily decried the deal as “a historic scandal”, while the Tribune de Geneve said it was a “waste, socially (for jobs), economically (for the reputation of the country), and shameful politically for the politicians who were too slow to act”.
Many acknowledged though that there had been little choice. The government had said the only alternative to the UBS deal was a full nationalisation of Credit Suisse.
The deal was the “best solution for restoring the confidence that has been lacking in the financial markets recently”, Swiss President Alain Berset told reporters on Sunday.
But investors remained on edge, with UBS shares falling by as much as 15% early Monday before climbing into positive territory in the afternoon. They closed the day up 1.3% at 17.33 Swiss francs per share.
Shares in Credit Suisse meanwhile opened nearly 64% lower on Monday, before clawing back some losses. They closed down 55.7% at 0.82 francs per share – slightly higher than the UBS purchase price.
While UBS, which raked in a US$7 billion net profit in 2022, is entering this forced marriage in full health, observers warned the mega merger is not without risk for the institution and beyond.
“The deal could draw a permanent line under the Swiss banking sector’s problems,” Capital Economics analyst Andrew Kenningham said in a note.
But he cautioned that “the track record of shotgun marriages in the banking sector is mixed” and that “further substantial losses in the legacy bank cannot be ruled out”.
Vontobel analyst Andreas Venditti also warned of “many uncertainties and significant risks.”
S&P Global Ratings revised the outlook on its A-/A-2 rating for UBS Group AG to negative, warning of “execution risk from the integration” although it added it believes the bank has “sufficient buffers to limit emerging risks effectively”.
The merger could among other things have dire consequences for jobs in Switzerland, where UBS and Credit Suisse have significant overlap in their businesses, and each with their own branch offices in every Swiss town and village.
Credit Suisse employed around 50,000 people worldwide, and 17,000 in Switzerland.
Commentators also warned of the impact of allowing UBS, already a giant, to swell further.
UBS was already the global wealth management leader, but the deal will create a behemoth managing around US$3.4 trillion in assets.
The deal “creates such a large super bank that it can get an entire country in trouble”, Marcel Fratzscher, head of the DIW think tank in Berlin, cautioned in an interview with Die Welt.
A commentary piece in the Neue Zurcher Zeitung also voiced alarm at the size of the merging bank.
“A zombie is disappearing, but a monster is in the process of being born.” – AFP
