ZURICH – Credit Suisse’s bailout takeover of UBS a year ago created “new risks and challenges” for the Swiss economy, the Organization for Economic Co-operation and Development, the latest international forum to voice concerns about the deal, said on Thursday.
The acquisition may have protected financial stability, but also raises questions about UBS’s domestic governance and the need for stronger financial regulation in the future, the OECD said in its economic review of Switzerland.
The biggest banking merger since the global financial crisis, orchestrated by the Swiss state to avoid the collapse of Credit Suisse, has created a group whose assets reduce the country’s economic output.
“The state-facilitated acquisition of Credit Suisse by UBS … effectively stabilized the growing crisis within Credit Suisse and tamed risks of spillovers, thereby protecting financial stability, but it raises new risks and challenges,” the OECD said.
“UBS – already a globally significant bank prior to the merger – thus became even bigger and under the ‘too big to fail’ (TBTF) regulations, it has to meet even stricter regulatory requirements,” it added.
The Financial Stability Board, a group of central bankers, fiscal officials and regulators from the Group of 20 major global economies, last month highlighted the risk that a UBS failure would pose to Switzerland and urged Bern to strengthen its controls on banks.
The Swiss government is due to make proposals in the next few months on how to strengthen regulations covering big banks, including increasing the powers of the main supervisor, FINMA, which has called for better tools.
The OECD raised questions about competition, with the new combined bank having about a 25% share of domestic deposits and loans, according to data from the Swiss National Bank.
Switzerland’s competition commission favors a deeper investigation into UBS’s dominance of some parts of the market, Reuters reported last month.
UBS CEO Sergio Ermotti dismissed critics’ warning about the lender’s size, saying it was low risk, as well as stronger and more diversified after the Credit Suisse acquisition.
In its report, the OECD also highlighted how efforts by investors seeking compensation for 16 billion francs of Credit Suisse’s Supplementary Bonds 1 (AT1) that were written off could lead to “costly litigation and uncertain outcomes”.
In its economic forecasts for Switzerland, the OECD predicted that the economy would grow by 0.9% in 2024 and 1.4% in 2025, below the country’s long-term average growth rate of 1.8%, and the government’s December forecasts of 1.1% and 1.7%, respectively.
“Weak foreign demand, tighter financial conditions and increased uncertainty are weighing on the economy,” the OECD report said.
However, the buoyant Swiss labor market should be able to absorb the “substantial” job losses that the banking merger will bring, the Paris-based organization said.
The very expensive Swiss housing market showed signs of cooling, it also said, but vulnerabilities remained – with properties estimated to be overvalued by up to 40%.
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