Swiss banks turn their backs on "merger mania"
Leading financial experts are gathering in Zurich to discuss the strategic challenges facing the banking sector.
Ahead of the meeting, Professor Beat Bernet of the Swiss Institute of Banking and Finance told swissinfo about the international strategies of Switzerland’s two largest banks.
The 2004 Finance Forum is focusing on the theme: “The bank of the future – strategies for increasingly competitive markets”.
The event comes at a time when Europe’s major banks are exploring the idea of cross-border mergers and alliances, in the wake of several major tie-ups between banks in the United States.
But UBS and Credit Suisse – the two largest Swiss banks and among the biggest in Europe – appear to have turned their back on the idea of further consolidation.
Bernet says that, despite the recent takeover of Britain’s Abbey by Spain’s Santander, the “hands-off” approach taken by the Swiss may end up carrying the day across Europe.
swissinfo: What is driving the current talk about cross-border tie-ups?
Beat Bernet: The rationale behind all these discussions is, on the one hand, economies of scale and, on the other hand, the search for greater market access – the hope that a franchise that one partner has in his market can be brought to another European market.
swissinfo: What is stopping this from happening more often in Europe?
B.B.: I think regulatory factors, in particular competition laws, are a real obstacle. Also, financial institutions see the immense costs that come with such a project. In a market with shrinking margins, it is more and more difficult to generate a substantial return from such a transaction.
swissinfo: Why are the Swiss in particular taking such a hands-off approach?
B.B.: In my opinion, big mergers belong to the 1990s. Today we have to focus more on new business models which open up opportunities to profit from economies of scale… without all the costs of full integration. I think that is why our big banks are now following a strategy that is not the same as the one they were pursuing in the 1990s.
swissinfo: UBS says it is following a “bolt-on” strategy of internal growth coupled with small- and medium-sized acquisitions. What about Credit Suisse?
B.B.: Credit Suisse is also focusing on consolidation and strengthening its return on capital. For the next two to three years, the group will focus on streamlining its businesses, before maybe preparing a next move at a later stage.
swissinfo: There are rumours that the recent departure of joint CEO John Mack from Credit Suisse was because he pushed for a link-up with Deutsche Bank. Do you think that was so?
B.B.: I don’t know what is behind personnel decisions at the top level, but I definitely don’t think that a close link with Deutsche Bank would be a good move. There is nothing to win with such a merger – size alone does not guarantee profitability, or even better market access.
swissinfo: How strong is the position of UBS and Credit Suisse when you compare their performances with those of other major European banks?
B.B.: You have to answer this question at a business unit level – i.e. private, retail or investment banking – and the answer would be quite different in each case. In private banking, the Swiss banks have a very strong position and they follow an international strategy. In retail banking, the situation is quite different. Here we still have local markets that are very difficult for outsiders to penetrate.
swissinfo: What about comparative financial strength?
B.B.: Again, you have to look at individual business units. In private banking, both have a very good position if you compare them with German or even British banks. In retail banking, the big British banks perform much better, but I think this is due to different client behaviour patterns. Compared with German, French or Italian markets, our banks enjoy a top position.
In investment banking, the situation looks less favourable, but Credit Suisse’s strategy in particular – focusing on medium-sized European firms – should help them to improve market share and profitability.
swissinfo: How do you think UBS and Credit Suisse can compete with the big US banks?
B.B.: I think the core market for our banks in future should be Europe and Asia. Both Swiss players have a good position here, given their financial strength and improvements in profitability over the past few years. In strategic terms, they had some problems in the past, but I think they have now done their homework. The same cannot be said for many other European, and even American, competitors.
swissinfo-interview: Chris Lewis
Recent US mergers include those of Bank One with JP Morgan Chase and of FleetBoston Financial with Bank of America.
The new “superbanks” have far greater capital bases than their European counterparts.
However, Europe’s biggest banks – HSBC, Royal Bank of Scotland, Deutsche Bank, UBS and Credit Suisse – have so far avoided any similar moves.
The recent wave of US bank mergers has sparked discussions about similar moves in Europe.
But regulatory and cultural differences mean a recent UK-Spanish link-up may be the exception that proves the rule.
Switzerland’s big banks are especially reluctant to pursue such a strategy – and banking expert Bernet thinks time will prove them right.
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