Potential UBS-Credit Suisse Merger Would Face Regulatory Hurdles

The two largest Swiss banks, UBS (UBS) and Credit Suisse (CS), may be contemplating a merger that would create a financial behemoth in wealth management and investment banking.

The Swiss finance blog Inside Paradeplatz reported Monday that UBS Chairman Axel Weber has retained the services of management consultants from outside the company to study the feasibility and ramifications of such a merger – although no formal talks have yet begun.

The blog said that Weber is the driving force behind the merger plan and has already discussed it with Swiss Finance Minister Ueli Maurer.

Inside Paradeplatz also said that the Swiss banking supervisory authority, known as FINMA, is aware of Weber's idea – and that the UBS boss envisions a merger being completed by the end of next year. Weber himself would the lead the merged entity.

A merged UBS-Credit Suisse, the blog speculated, would become the leading banking giant in continental Europe.

However, the blog noted, a merger would lead to the cutting of 10% to 20% of UBS staffing – or up to about 15,000 jobs across the world.

As with banks across Europe, UBS and Credit Suisse are facing turmoil related to the COVID-19 pandemic, low interest rates and are under pressure to reduce cost structures. Rapid consolidation is perceived as inevitable in the industry.

Credit Suisse shares have dropped about 22% this year, while UBS has tumbled about 8%.

UBS and Credit Suisse have discussed potential combinations over the years, but such endeavors were always scuttled by fears of regulators cracking down on potential antitrust issues.

This also would not be the first time UBS has sought mega-merger deals. Last year UBS contemplated a merger with Germany’s Deutsche Bank (DB) before dropping the matter.

Some have expressed doubts about an UBS-Credit Suisse tie-up.

“There is a case for partnering in some of the businesses like investment banking markets [where] they don’t have the same critical mass as their U.S. competitors,” a top shareholder at one of the banks told the Financial Times. “But a full merger I cannot see the logic.”

Andreas Venditti, an analyst at Vontobel in Zurich, also did not think a merger of this scale is feasible, citing regulatory hurdles.

A merged bank “could become a size issue for Switzerland” and new regulatory rules “are not favorable of a mega bank merger,” JPMorgan Chase & Co. analysts Kian Abouhossein and Amit Ranjan wrote in a note.

“I would not have thought about a potential tie-up between these two Swiss giants,” Pedro Marinheiro, a fund manager at Reyl & Cie in Geneva, said according to Bloomberg. “I would more expect the large European banks to snap up the smaller players.”

However, Elisa Martinuzzi of Bloomberg thinks that a merger between UBS and Credit Suisse makes some sense.

“A combination would have $1.9 trillion of assets, more than twice [Switzerland’s] annual GDP, and be far too dominant in its home market,” she wrote. “Yet, on paper, the strategic and financial logic is too appealing to ignore.”

While conceding that UBS is already the world’s largest wealth manager, she noted that combining with its smaller competitor, Credit Suisse, “would see it pull further away from the pack in terms of scale and the efficiency that brings. Technology investment will only get more expensive. From back-office to research to compliance, the scope to eliminate duplicate expenses [by merging] is enormous.”

The combined firm, Martinuzzi added, would get “closer to having the full-service investment-banking offering that neither UBS nor Credit Suisse [currently] has on their own.”