OECD Flags UBS Dominance and Swiss Economy Risks After Merger

15 March 2024

**UBS’s Takeover of Credit Suisse Poses New Challenges for Swiss Economy, OECD Warns**

The Organisation for Economic Cooperation and Development (OECD) has raised concerns about the implications of UBS Group AG’s (UBSG.S) acquisition of Credit Suisse, which took place a year ago. The rescue takeover, while having averted a potential financial crisis, now presents “new risks and challenges” for Switzerland’s economy.

In its economic review of Switzerland, the OECD acknowledged that the state-facilitated merger, the largest since the global financial crisis, did ensure financial stability by preventing Credit Suisse’s collapse. However, it also resulted in UBS’s increased domestic dominance and highlighted the necessity for more robust financial regulation.

The combined entity now holds assets that surpass the nation’s economic output, prompting the OECD to stress the importance of adhering to ‘too big to fail’ (TBTF) regulations. These require UBS to meet even stricter regulatory requirements due to its enlarged size and systemic importance.

The Financial Stability Board has also underscored the significant risk UBS’s failure could pose to the Swiss economy and has called on Bern to reinforce its banking controls. Proposals are expected from the Swiss government in the coming months to strengthen regulations, including enhancing the powers of FINMA, the primary supervisor.

Competition concerns have been raised as well, with UBS now controlling approximately 25 percent of domestic deposits and loans. The Swiss competition commission is reportedly pushing for a thorough investigation into UBS’s market dominance.

Despite criticism over the bank’s size, UBS CEO Sergio Ermotti maintains that the institution is low-risk and more resilient post-merger. Nevertheless, investors seeking compensation for the 16 billion francs of written-off Credit Suisse AT1 bonds face a future of costly litigation and uncertain outcomes.

The OECD’s report also includes economic forecasts for Switzerland, projecting growth rates below the country’s long-term average and government predictions. The economy is expected to expand by 0.9 percent in 2024 and 1.4 percent in 2025. Factors such as weak foreign demand and tighter financing conditions are cited as contributing to this slowdown.

Despite these challenges, the OECD believes that the robust Swiss labor market will absorb the job losses resulting from the bank merger. Additionally, while the Swiss housing market has shown signs of cooling, concerns remain over property overvaluation, with prices in Zurich reaching new heights.

The Swiss government has taken note of the OECD’s analysis and recommendations, indicating that regulatory adjustments are on the horizon for Switzerland’s banking sector.

bank merger

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