A year after UBS’s takeover of Credit Suisse, the Organisation for Economic Cooperation and Development (OECD) has voiced concerns about the potential “new risks and challenges” this merger poses for the Swiss economy.
Although the deal was pivotal in maintaining financial stability by preventing Credit Suisse’s collapse, it has significantly increased UBS’s dominance in the Swiss market and underscored the urgency for more robust financial regulations, the OECD detailed in its Switzerland economic review.
The merger, which is the largest since the global financial crisis, resulted in a conglomerate with assets surpassing Switzerland’s GDP, thereby elevating UBS’s status as a globally systemically important bank.
“The state-facilitated acquisition of Credit Suisse by UBS … effectively stabilised the growing crisis within Credit Suisse and tamed risks of spill-overs, thus safeguarding financial stability, but it raises new risks and challenges,” the OECD remarked.
Moreover, the Financial Stability Board recently emphasized the dangers UBS’s failure could pose to Switzerland, calling for enhanced regulatory measures.
The Swiss government is contemplating regulatory reforms to augment the oversight capabilities of FINMA, its primary financial supervisor.
These proposed changes are in response to OECD’s concerns about UBS’s enlarged market share, which now stands at roughly 25% of domestic deposits and loans, sparking debates over market competition and the need for a thorough investigation into UBS’s market dominance.
UBS CEO Sergio Ermotti defended the bank’s expansion, highlighting its low-risk profile and enhanced diversification post-merger.
Meanwhile, the OECD flagged the potential for “costly litigation and uncertain outcomes” stemming from efforts to seek compensation for the annulled 16 billion francs of Credit Suisse’s AT1 bonds.
In its economic outlook, the OECD projected Switzerland’s growth to slow down to 0.9% in 2024 and 1.4% in 2025, attributing the sluggish pace to weak foreign demand, tighter financing conditions, and increased uncertainty.
Despite these challenges, the OECD remains optimistic about the Swiss labor market’s resilience in absorbing the merger’s job cuts and notes the cooling signs in the country’s overheated housing market, though it warns of lingering vulnerabilities with properties potentially overvalued by up to 40%.