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UBS and CS at Paradeplatz: How close are the two big banks getting closer? Photo: trapezoidal
“Almost fell off my chair”: What’s behind the CS / UBS merger rumors?
The report from the finance blog “Inside Paradeplatz” went around the world and caught UBS and CS employees by surprise. CH Media’s editorial team reached out to UBS CEO Sergio Ermotti by cell phone, but it’s covered.
At the latest, when stock prices started to rise, speculation about “Inside Paradeplatz” could no longer be ignored. In pre-market trading, CS and UBS shares were still flat, but after the opening of the exchange and the publication of the rumors on the financial blog, the shares were up around 2 percent, and the stock market stayed flat overall. CS a bit more than UBS.
The report went around the world: international financial portals picked up the sensational story of “Paradeplatz”. Next year there will be nothing less than a major merger between the two leading Swiss banks. The project already has a name in UBS and CS: “Signal”.
UBS board of directors, Axel Weber, is the driving force behind the “Signal” project, writes the finance portal, citing “an insider.” Weber had already spoken to Finance Minister Ueli Maurer about “Signal.”
And, Inside Paradeplatz continues, Weber has an ambitious agenda. The merger should be agreed in early 2021 and by the end of the same year it should be until now: Switzerland would have a global megabank.
A bank would emerge with a balance sheet of 1.7 trillion francs and more than 116,000 employees. In terms of market capitalization, the merged bank would remain a lightweight with a value of around 65 billion Swiss francs. At least compared to the big three Novartis, Roche and Nestlé. The food company alone has a valuation of nearly 317 billion Swiss francs.
The communications offices of UBS and Credit Suisse are now overwhelmed by media from around the world. What about speculation? “We do not take a position on the rumors,” announced UBS and CS in unison. At least the communication – it was agreed.
UBS President Axel Weber (right) is said to be the driving force behind the merger. CEO Sergio Ermotti (left) says about the rumors: “No comment.” Image: EPA
CH-Media’s editorial team tested UBS CEO Sergio Ermotti at noon. He, too, was just “No comment on rumors” when he picked up the cell phone. When asked if a denial would not be necessary in a matter as large as a merger speculation, Ermotti repeated: “No comment.”
The interpretation of a “no comment”
In this case, as with a rumor about a minor restructuring or a lawsuit, can you just reach out without comment? Internally, this statement is interpreted as confirmation of some form of conversations between CS and UBS. “It doesn’t have to be a real merger right away,” says a CS man, “but if nothing happened, such a report would be denied sometime during the day.”
Another CS manager, who is in senior management, says, “I almost fell out of my chair when I read the story.” A merger would be a complete surprise and no one expects it. Nor was it ever a topic of conversation. Plus:
What can be considered safe: Weber is looking for potential merger partners across Europe. German media reported on a possible merger of UBS and Deutsche Bank. CH Media knows from a reliable source that Weber actually explored a merger with Deutsche Bank. In the end, however, Deutsche Bank was too sick to sell an acquisition to UBS shareholders.
It is also an open secret that the European authorities want to encourage the emergence of megabanks. These European champions should help facilitate the consolidation of the banking sector at the European level. Banks weakened by the eurozone crisis will be thrust into the arms of these champions. A UBS / CS, for example, would take over a German Commerzbank.
High requirements from competition authorities
But in Switzerland, Weber would have some problems to solve. In Swiss retail banking, a merger of UBS and Credit Suisse would lead to excessive market concentration. In many regions, customers no longer have too many options. Competition authorities would likely impose strict requirements.
A new Swiss megabank would also be “too big to fail.” It would have a balance sheet of around 2.5 times the Swiss gross domestic product. Switzerland would not be credible internationally as a location for such a megabank. In the event of a problem, she would definitely be overwhelmed, even if she managed to rescue UBS.
But Weber is more likely to take international logic into account: UBS could expand its leading global asset management company to include Credit Suisse clients. This, in turn, would bring your investment bank much stronger into the new structure.
Regulators sweat?
In this constellation, the new Swiss megabank could also try a new attempt in the US market. Even if Swiss regulators only have beads of sweat on their foreheads just thinking about it. UBS had to be bailed out in 2008 mainly because it had crashed with overly ambitious plans in the US.
UBS and CS have to grow somehow. Stock market prices have been falling for years. What they save on personnel, they have to spend again on material costs. In Switzerland, the total costs of all banks have remained more or less the same for the last ten years, although banks now employ significantly fewer people and staff costs are almost a fifth lower.
Investments in IT are an important element among this sharp increase in material costs. To be able to distribute these costs among more clients, that should be the objective of all banks. Therefore, mergers are needed, sometimes even a mega merger of UBS and Credit Suisse.
