The developed world’s banking sector fell into big trouble in 2023 with the threat of collapsing some banks in the USA and Europe. Credit Suisse, one of the largest financial institutions in the world, which was about to fall, was salvaged by a forceful merger with another banking giant, UBS Switzerland. Even though the merger was a planned and forced exercise directly sponsored by the Swiss authority, UBS had acquired about half a trillion dollars in assets along with an enormous customer base and business facilities from Credit Suisse’s global operation.

Following the merger with Credit Suisse, UBS also took over impaired assets and absorbed more than $5 billion in losses which compelled UBS to undertake an extensive restructuring process by unloading some assets and considerable job cuts. After the merger, UBS has subsequently turned into the most complicated process of integrating two giant entities. Integration has taken the most complex structure, and UBS management has been scrambling hard to find a solution. The integration process has taken a further complex turn following recent issues related to the tension that erupted over trade war escalation and the Swiss authority’s measures to tighten capital requirement regulation.

UBS bank has scheduled to commence migration of defunct Credit Suisse customers’ accounts in Switzerland to the bank’s platform from the middle of this year. While preparation for the planned migration was in progress, the bank authority found this process to be the most complex step of integrating the whole of Credit Suisse. UBS authority has been facing challenges in completing the migration of Credit Suisse accounts in Switzerland because in Switzerland, UBS is required to integrate not only Credit Suisse’s customer accounts but also the two banks’ structure, shrinking portfolio and employees as well.

UBS’s integration process, while going on as per the planned schedule, turned more complex with the passing of new banking laws, which aim to update Switzerland’s “too big to fail” banking concept. According to this new law, banks in Switzerland are required to maintain additional capital requirements so that banks remain well-positioned to withstand any future adversity and thus bail out from the government. The fund can be avoided. Under this situation, UBS may not be able to generate enough revenue immediately after the integration of Credit Suisse to declare dividends to their shareholders, which may result in a fall in their share price.

After the fall of Credit Suisse, the Swiss government formed a parliamentary committee to investigate and submit a comprehensive report on the bank’s failure. Switzerland used to claim that they had established the most standard regulation in overseeing the banking operation, so the fall of banks in their country was a big blow to the authorities who could not easily accept it. It is learnt from the banking report that the parliamentary committee has submitted their report wherein it is mentioned that “Credit Suisse could have been saved if the country’s financial regulator took a harder line overseeing and enforcing capital rules”. From that bitter experience, the Swiss authority is now determined to strictly enforce the banking regulation including new capital rules. From a regulatory perspective, this stringent regulation may be considered the right approach but will cause painful action for the market players, particularly the giant financial institutions, like UBS which has a global presence.

As reported, UBS has further said that they are also facing uncertainty because of the potential threat of significant policy developments from the new US administration and geopolitical risks. They are considering 2025 as another resilient year for the global economy, particularly in the USA and therefore, their forecast for the coming year is that economic uncertainty is likely to remain very high and the threat of US higher tariffs may cause economic hardship in Europe and Asia. The overall global economic uncertainty will cause additional pain to UBS’s already complex integration process.

Although Swiss authorities rescued Credit Suisse through a merger with UBS, they immediately realised that merger or closure is not the best way to save a weak bank. Therefore, when another Suisse bank, Julias Baer International, fell into a similar trouble, the regulator in Switzerland did not consider applying the same approach. They neither merged the bank nor closed it. Instead, the Swiss authority saved that bank by applying different approaches, particularly by extending direct and indirect support to that bank. In our country, the idea of the merger and closure of weak banks is being widely discussed. Even the present governor has mentioned several times about closing weak banks.

Those who are advocating for the bank closure or merger in our country, therefore, should thoroughly review the case of UBS and Credit Suisse to get a clear idea about the process and aftermath of this action. Some may argue that Switzerland is a developed country while Bangladesh is a developing country, so the strategy applied to developed country’s banking may not work for developing country’s banking. The argument may seem true but not always, because banking is a global business which maintains some common features. Therefore, fundamental principles are equally applicable to all banks.
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The writer is a certified anti-money laundering specialist and banker based in Toronto, Canada. Email: [email protected]