UBS - Secure competition
Guest commentary by Marino Baldi and Felix Schraner. Marino Baldi is Of Counsel at Prager Dreifuss; Felix Schraner is Partner at Ixar Legal AG.
UBS - Secure competition
On 19 March 2023, UBS took over Credit Suisse at the behest of the Federal Council. This was done to protect the Swiss financial system. The result was a banking colossus whose balance sheet total of 1.5 trillion dollars is more than twice the size of Switzerland's gross domestic product. The effects of the merger on competition have not been the focus of discussion so far. For the real economy, however, these are central.
Thus, considerable impairments of competition are to be feared. There are thousands of companies that can now solely conduct numerous banking transactions with the new UBS. This affects not only large multinational companies with their demand for highly complex financial services (e.g. in the foreign exchange area), but also numerous internationally active SMEs.
A large part of the Swiss economy, which is geared to special dynamism, needs the diverse functions of a (Swiss) universal bank such as UBS - or so far CS. It depends on loans, salary payments and pension fund services from a single source, if possible. Competition with rival providers is particularly important here. As far as foreign financing is concerned, this competition cannot come primarily from the Swiss cantonal or other regional banks.
The State Secretariat for Economic Affairs (Seco), the federal body responsible for Swiss foreign economic policy, is thus also addressed. As is well known, every second franc in Switzerland is earned abroad. At the same time, export-dependent companies already have to accept a number of handicaps compared to competitors from other countries - such as high costs and prices, a strong currency, and non-tariff trade barriers due to a lack of regulations with the EU.
In such a situation, sub-optimal financing conditions, which can arise due to a lack of competition among banks or, in this case, the loss of an important competitive player, are of particular importance. It will be all the more indispensable that in the still outstanding negotiations between the federal authorities and UBS, merger conditions are formulated that do not lead to restrictions of competition. Seco will have to approach the Comco and Finma in this regard.
The authorities are legally obliged to prevent any harmful effects of the merger and thus to promote competition in the interest of a free market economy. They are required by the Cartel Act not to approve mergers hastily, i.e. without thorough examination and due consideration of the competitive aspects.
If this due diligence is lacking, legislative instruments are at least available to safeguard competition in the Swiss banking centre. Already today, the permanent control of companies with market power is quite possible. Based on the Cartel Act, the Comco can prohibit and impose sanctions on any abuses by the new UBS (e.g. with regard to prices or other business conditions). In addition, legal size restrictions in the form of upper limits on the permissible extent of internal and/or external corporate growth could be introduced quickly. Finally, the inclusion of an unbundling option in the Cartel Act should also be considered, as is already the case in the USA, for example, and which Germany is planning to introduce.
If the competent authorities do not fulfil their mandate, it is up to the legislator to tame the monster by quickly introducing stricter instruments in order to ensure competition in Switzerland for the benefit of local companies, especially internationally active SMEs.