Mergers and acquisitions have returned back on the agenda of Swiss banking with force. Even if the mooted UBS-Credit Suisse-deal seems an unlikely proposition now, there are plenty of other options on the table for 2021, as an overview presented by finews.asia shows.
Big banking has found its appetite for takeovers again. The statements to that extent by both UBS Chairman Axel Weber and Credit Suisse CEO Thomas Gottstein leave little room for doubt. They both said that they are interested in taking over other banks.
Gottstein told «Bloomberg» last week that he was ready to evaluate opportunities to buy, in particular those in private banking. Weber in turn used an interview with «NZZ am Sonntag» to make clear that the bank would aim to defend and increase its market share as global No. 1 in wealth management, not excluding buying rival firms.
With Personnel Issues Out of the Way
The option of buying seemed off the table until very recently. The Swiss heavyweights were bogged down with too much introspection. At UBS, the handover from Sergio Ermotti to Ralph Hamers and the protracted fight over a multi-billion-euro fine in France sucked up valuable resources, while Credit Suisse (CS) first had to manage the biggest turnaround of its history, before descending into an arduous process of replacing the top management.
No more. The time is right to look ahead and define one’s ambitions. It may appear a tad ironic that they would do so in the midst of the biggest economic crisis of the past 75 years. But the signs are on for deals, be it mergers or acquisitions.
A Closer Look
The banks are facing major challenges and may not be able to master them from going alone. Shrinking margins, lower market share as a consequence of digital innovation, tougher regulation and rising costs dealing with it, and investments in IT. If this weren’t enough, the U.S. competition seems at least one step ahead.
So, what are the options for UBS and CS? It seems obvious that the one big deal isn’t the solution for their problems and remains unrealistic. The finews-roadmap for 2021 attempts to provide a more nuanced view of what next year might have in store for the banking industry.
1. Option: Early Proponents Give It a Pass
The project had even been given a name: according to reports in the media, UBS in September had mulled a merger with CS under codename Signal. Weber since has distanced himself from such a plan, having been stung by public protest and the negative response from experts.
A merger between the two seems a tough enough proposition indeed. Investors might be tempted, given that both giants are trading below book value. But in Swiss and European banking the problem is one of over-banking, ie excessive capacity.
In reality, the costs of such a merger look awe-inspiring. The effort to merge the two would suck up all available resources and hinder the operational well-being of the two. Political, regulatory, and competition-related aspects not mentioned. Maybe there’s a case to be made for splitting off and merging certain parts, such as investment banking or the funds business of the two. Investors have put forward such ideas regularly and will likely continue to do so.
- Probability: 50 percent
2. Option: Raid From Abroad
(Frankfurt am Main, Shutterstock)
Having a low market cap makes UBS and CS potential takeover targets for foreign big hitters. The consolidation is underway in Europe. Caixabank and Bankia in Spain have found together, forming the market’s new No. 1. BBVA and Sabadell are in talks to follow suit. In Italy, Intesa and UBI Banca have merged. In Germany meanwhile, talks of a merger between Deutsche Bank and Commerzbank have cooled.
The European Central Bank (ECB) suggested that the industry would profit from cross-border M&A-activity. The case for taking over a bank in Switzerland seems a little more complicated, but UBS Chairman Weber is a known supporter of creating a European champion.
However, UBS and CS might end up being the junior partners in such a deal, which in turn would raise the prospects for a Swiss solution.
- Probability: 40 percent
3. Option: Buying Local
(Basel, Shutterstock)
Both banks could do smaller deals to build their position in a specific market. For instance, the Basel region spans three countries (France, Germany, and Switzerland) and is home to many, hugely wealthy people. They often still prefer the personal touch of a small, local private bank. Taking over such a company may not appear spectacular but would nevertheless be hugely symbolic.
The banks might also simply do an asset deal, buying the books of a rival bank. LGT did this a while ago when it bought the assets of HSBC Private Bank Switzerland.
- Probability: 30 percent
- Page 1 of 2
- Next >>
