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UBS market strength puts Swiss industry on edge

UBS’s takeover of Credit Suisse has fed a creeping anxiety that Swiss companies will pay a price for the enlarged bank’s outsize market strength.

The historic 2023 deal created a bank with a balance sheet twice the size of the Swiss economy, and at a stroke eliminated one of the two giants of the Swiss banking landscape.

It also narrowed the financing options for the country’s high-cost, highly competitive export-orientated companies, especially with Credit Suisse seen as the bank which supported entrepreneurs in areas like export finance.

UBS Chief Executive Sergio Ermotti says market competition is robust, and that his bank would only be the second-largest player after cantonal lenders in most product areas.

Still, last month Ermotti said Credit Suisse had run an “unsustainable business model, too much cost, too little revenue, too much risk,” hinting at price increases.

“Services and credit were subsidised or priced at an unacceptable level, well below where UBS prices, and well below (where) every competitor prices. So, it’s true that in a selective way, we’re going to have to relook at repricing things,” he said.

The bank pointed to Ermotti’s remarks when asked for comment on this story, but declined to quantify prospective changes.

Reuters spoke to over a dozen finance experts and industry executives who expect UBS to raise prices as new loans are negotiated.

Meanwhile almost half the firms recently surveyed by Swissmem, an association representing industry heavyweights including ABB and Siemens, reported services from banks had worsened, or said they feared they would.

“Some companies are seeing a negative effect on banking services. But many fear this is going to happen,” said Jean-Philippe Kohl, deputy director of Swissmem, whose survey showed availability of credit was companies’ biggest worry.

So far evidence of higher costs feeding through is scarce, and analysts said it was still too early to assess how much costs could rise. That would become more apparent in coming months as old loans give way to new agreements, they said.

Some said UBS is being careful for now to avoid drawing tougher antitrust regulation. Financial regulator FINMA is still weighing up a hitherto unpublished report by Switzerland’s competition commission (ComCo) into UBS’s market strength.

In the report, ComCo told FINMA it favours a deeper investigation into UBS’s dominance of parts of the market, Reuters reported in February.

Andreas Heinemann, who was ComCo president from 2017 to 2022, said FINMA from the outset ruled out making the takeover subject to certain conditions such as asset disposals, and waved the deal through before ComCo had given its expert opinion.

“FINMA gave the impression that this opinion did not carry much weight in its analysis,” he said.

FINMA said it could review the competition impact of the takeover, and would comment on the ComCo report in due course.

Some senior executives at Swiss-listed firms privately worry that issuing corporate bonds could get more expensive.

“There’s less competition,” one told Reuters.

The enlarged UBS had a 45% market share for underwriting Swiss franc-denominated bonds in 2023, according to figures from finance industry data provider Dealogic.

The two banks also had a 31% share of the Swiss non-mortgage loan market in May 2023, the last available month of data from the Swiss central bank. In some sectors like manufacturing, the proportion was higher (39%).

John Revill, "UBS market strength puts Swiss industry on edge," Business recorder. 2024-06-13.
Keywords: Economics , Market strength , Financing options , Export finance , Credit Suisse , Loans , Revenue , Sergio Ermotti , Switzerland , 2023

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