Of Size and Switzerland
The Swiss Insider - 25 March 2023
Dear Insider,
“Too big to fail” has become a dirty word…er…phrase.
At last Sunday’s evening press conference announcing the merger of UBS and Credit Suisse, it was used several times.
Clearly, Credit Suisse was not too big to fail - nor too big to be swallowed up. Size, despite what many people think, doesn’t matter so much…
Or does it…?
The UBS-CS tie-up creates not just a mega bank. It is a mega-monster bank. In one way Switzerland is moving up into the big leagues. In another way, it is uncharted and potentially dangerous territory.
Meanwhile, the Swiss National Bank shook off skepticism about the size of interest rates and raised its reference rate by another 0.50%.
Bigger is better…?
Quick hits:
📏Measuring up and down
The new UBS will be a monster bank. Its balance sheet is projected to top $1.5trn - nearly twice the size of the Swiss national GDP. Total invested assets would hit approximately $5trn. Its wealth management division would see a huge jump with nearly $3.4 trillion on the books - placing the new mega bank only behind Morgan Stanley in the WM business. On a more granular level, UBS is set to rival BlackRock as the largest provider of ETF and ETP products, not to mention mutual funds.
🧨Plan of (counter)attack
The pro-business liberal party of Finance Minister Karin Keller-Sutter was in the cross-hairs after the UBS-Credit Suisse merger. Her colleague, party president Thierry Burkhardt has her back. He first counter-attacked by blasting former Finance Minister Ueli Maurer (SVP) for his laissez-faire approach to Credit Suisse - and then proposed a spin-off of Credit Suisse’s Swiss bank.
💸Tech tie-up
The merger between UBS and Credit Suisse wasn’t the only new relationship to be announced. VC firm Redalpine and Zürich-based private bank Maerki Baumann announced a cooperation to bring private capital to the startup and venture investments of Redalpine. Here size is not so much of an issue…
💡The Point:
👉UBS Chairman Colm Kelleher had been pushing investors to compare his bank more to Morgan Stanley - arguing that its book value-to-share price ratio was too low. Now the ratio will be even higher.
But size has its problems - and with direct democracy in Switzerland alive and well - a referendum could put a wrench in UBS’s planned world domination.
Kelleher might find out that bigger isn't better - even if it makes his brand look more trustworthy. Bets on banking stocks are not popular right now…
👉Thierry Burkhardt has the challenge of FDP’s past history - and the relative size of his party, sitting at roughly No. 3 in nationwide polling. While his proposal to split off the CS domestic unit might put him at odds with his own finance minister - it is a canny move to “punch up”. A recent poll shows that many Swiss favor such a plan. Burkhardt is playing the small game - and may win.
👉Small private banks in Switzerland aren’t supposed to be super tech affine. Their history and value proposition are different. But Maerki Baumann has been pioneering in many ways - offering cryptocurrency investments for several years already. By teaming up with Redalpine, it seems they may be embracing a “bank as a platform” model - a surprise for a private bank. But connecting private investors to unique investment opportunities is a smart (small) step.
📈The Insider Advantage:
Switzerland has big companies - Roche, Novartis, Nestlé - to name just a few. But the UBS-CS behemoth feels different. Part of the problem is the sector.
Being big in banking has its advantages; a balance sheet to make big bets is nice. But it can go badly wrong…
Most successful Swiss businesses have grown slowly - and reached their optimal size over time. In many ways, Switzerland’s infrastructure, political system and economy function so well precisely because they are not too big to handle.
The fear now becomes that creating a monster out of UBS will lead it to do things sloppily.
With pressure to keep the top rainmakers from CS’s wealth management business (UBS WM head Iqbal Khan is already jetting around the world to try and keep them) and a possible referndum on the horizon - there will be pressure to “go big and go fast”.
That isn’t usually the best way to make money in Switzerland.
➕The Bonus:
📺 Less is more? - Ringier media brand Blick TV has not been so successful. Its programming will now be more limited with less live segments. (Link)
💸Beating UBS - Zürcher Kantonalbank was a beneficiary of Credit Suisse’s deposit outflows. Now its bonus package is beating that of UBS - with an average of CHF 60 000 per employee. (Link)
🛡By the law - With private armies popping up (especially in Ukraine), the Swiss have something to say about the future of the Geneva Convention. (Link)