An issue that came out of the 2008 financial crisis was the problem of banks deemed "too big to fail" and how this contributed to expectations of bailouts and support that paradoxically added to market risks. Consolidation can sometimes provoke anti-trust concerns – although not in this specific case, it appears.

The Swiss Financial Market Supervisory Authority, or FINMA, has said that last year’s “shotgun wedding” of UBS and Credit Suisse does not remove competition in the market.

In its statement a few days ago about last year’s merger – which left Switzerland with only one universal bank – FINMA said the transaction “will not eliminate effective competition in any market segment.” The regulator has wrapped up its “anti-trust control procedure” over the transaction.

FINMA approved the merger of the two large banks in advance on 19 March 2023 in accordance with the Cartel Act.

The regulator said that its “immediate action was in line with the statutory process defined for such cases,” adding: “FINMA takes the place of the Competition Commission (COMCO) in the case of mergers that it deems necessary for reasons related to creditor protection. This allows it to give priority to the interests of creditors.”

The comment about creditors may raise eyebrows among holders of Credit Suisse AT1 bonds – a form of “shock absorber” capital issued after the 2008 financial crash – who have seen the value of this debt written down because of the merger, conducted at the behest of the Swiss federal government. Bondholders in one case have sued the Swiss authorities.

One theme emerging from the 2008 financial crash was the “too big to fail” challenge of banks that, via mergers or other routes, became so large that their managers knew that states would have to bail them out in the event of trouble. This situation, the argument went, fostered moral hazard and imprudent behaviour, necessitating state controls.

The reasoning
Explaining its thinking, FINMA said: “The merger of UBS with Credit Suisse will not eliminate effective competition in any market segment, even if UBS has been able to strengthen its market position is certain sub-segments. The requirements under merger control law for intervening in the merger are therefore not met and FINMA has concluded the control procedure without imposing any conditions, obligations or further reviews.” 

Separately, the fact that UBS is now the sole universal bank in Switzerland begs the question of whether other groups might merge or otherwise join forces to provide more competition, given the need for economies of scale. Three weeks ago, rumours circulated that Julius Baer and EFG International, both listed in Zurich, were in talks. So far the banks have declined comment.