The decision could become an own goal for Finma

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

Without any conditions, reservations or further reviews. The Swiss Financial Market Supervisory Authority (Finma) on Wednesday gave unconditional approval to the merger of UBS and Credit Suisse (which essentially means UBS’s takeover of CS) from an antitrust perspective.

In a rescue operation led by the Swiss Federal Council and supported by the Swiss National Bank (SNB) in March 2023, Finma also took on the role of competition regulator, sidelining the Competition Commission (Weko) – the body usually responsible for this oversight .

Forced marriages directed by the state

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

Understandably, because the authorities saw UBS’s takeover of CS as the best way to alleviate the financial crisis and protect both the Swiss financial sector and international financial markets. As a result, the authorities facilitated this state-driven (and somewhat forced) merger through emergency measures, including a favorable purchase price, significant liquidity commitments, guarantees and the declaration of the CS Extra Tier-1 bonds as worthless – an issue that remains unresolved in Switzerland.

Pure conclusion

In these circumstances, it is not surprising that the authorities, who did everything possible to ensure that UBS took over the failing CS for the good of the country and the global financial system, failed to punish UBS for it more than a year later. Moreover, it is conceivable that Finma wanted to get rid of the unusual and additional burden of acting as a competition regulator by ending the proceedings cleanly.

From now on, Finma can focus entirely on its traditional role. “Finma will continue to closely monitor the integration of CS with UBS from its supervisory point of view,” the authority clearly stated in the announcement announcing the end of the proceedings.

No impact on competition?

On the other hand, the unreserved approval is noteworthy given that it involves the merger of two of Switzerland’s largest banks. Can this really have no impact on competition? Even Finma admits that “UBS has strengthened its market position in some segments.” Weko was able to support this process, which means that Finma based its decision on Weko’s market research and opinions.

Although Weko was initially sidelined during the merger, it was later allowed to voice its concerns. In a comprehensive statement dated September 25, 2023, Weko’s recommendations were organized by banking sector. Competition generally exists in retail banking, but Weko advised the price monitor to monitor developments.

Weko’s main concerns

In asset management, a merger of the two largest providers would lead to market concentration and weaken competition. Weko therefore recommended that Finma closely monitor the prices of global custody services (for institutional investors investing in different countries) and report any irregularities to the price monitor.

In corporate banking, Weko noted that there are currently no full-fledged alternatives for various customer segments beyond the combined UBS. Weko’s recommendations, addressed to both Finma and the SNB, include overseeing prices, fees and margins in corporate loans, export financing, international payments and Swiss franc bonds, as well as cooperating with the price monitor in the event of irregularities.

Recommendations for Finma, SNB, Price Monitor and Legislators

In addition, Weko suggested that Finma and the SNB examine the fees and prices of joint financial market infrastructure projects for distortions of competition. Weko also recommended that Finma and lawmakers encourage foreign bank entry to boost competition, in particular by speeding up the approval process.

The Weko Board cites significant concerns in fall 2023 regarding competition in various key markets post-merger. Surprisingly, after an extensive Finma-backed review of Weko, none of these concerns seem to have a significant impact.

Weko’s response to the 1998 merger

Older generations may remember the merger of the “Schweizerischer Bankverein” and the “Schweizerische Bankgesellschaft” in 1998 to create UBS. Weko imposed a number of conditions to protect competition, even though CS was a very active competitor at the time. UBS had to sell 26 branches, including 18 in economically sensitive regions.

Voluntary merger rejected by the authorities

If UBS and CS had voluntarily merged a few years ago, Finma and SNB would probably have put up fierce resistance, highlighting the huge risks to financial stability, and Weko would have worried about market competition. The opposition would be significant. In 2020 finews.ch it was speculated that such a merger would involve endless delays in obtaining regulatory approvals in all relevant markets.

A serious, suggestive question

Today there is a new financial giant, created with significant support from the authorities. While opinions vary on the potential risks to financial stability, C.E.O Sergio Ermotti highlights the strengths of UBS, while the Swiss Federal Council, the Federal Department of Finance, FINMA and the SNB are pushing for tighter capital requirements.

Even if FINMA’s conclusion that the merger does not significantly impede competition is understandable, it raises a critical and potentially uncomfortable question for the regulator: if the new UBS poses no threat to market competition, could it also pose less of a threat to the financial system than previously feared? ?