UBS Group AG Chairman Axel Weber has been studying the feasibility of a mega-merger with rival Credit Suisse Group AG as part of a regular thought-exercise on future strategic options, according to people familiar with the matter.
UBS, the world’s largest wealth manager, has been exploring the question with consultants but it hasn’t raised the topic at the level of the executive board, the people said. The assessment is part of regular internal planning procedures and there are currently no formal discussions going on between the two banks, said the people, who asked for anonymity because the information isn’t public.
Both banks declined to comment. Speculation about a deal was stoked earlier Monday, when Swiss finance blog Inside Paradeplatz wrote that Weber and Credit Suisse Chairman Urs Rohner could agree on a merger as early as next year.
Talk about European banking consolidation has been heating up as the coronavirus pandemic adds to challenges such as negative interest rates that have weighed on profitability for years. Spain’s CaixaBank SA and Bankia SA said this month they’re exploring a merger to form the largest lender in the country. While a deal between the two Swiss banks would allow for overlap to be eliminated, executing such a transaction could be difficult, said Andreas Venditti, an analyst at Vontobel.
“Regulation would be the biggest hurdle in my eyes” because requirements are tougher the larger an institution is, Venditti said, adding he doesn’t think a deal is likely.
Back-Office Talks
Shares of Credit Suisse rose 4.2% at 3:58 p.m. in Zurich, and UBS gained 2.2%.
Weber’s planning exercise comes as UBS is in the middle of a leadership transition, while Credit Suisse just completed one. The two rivals have been assessing the possibility of combining back-office functions for some time to cut costs, Bloomberg reported two years ago. Those talks are still continuing, according to people familiar with the matter.
Weber has been among bank leaders calling for Europe’s lenders to consolidate so they can better compete with U.S. rivals. UBS last year briefly explored the idea of another mega-merger, with Deutsche Bank AG after that firm’s talks with Commerzbank AG collapsed, Bloomberg reported at the time. Those talks never proceeded beyond the initial stage.
A full-blown merger with Credit Suisse would face major regulatory hurdles as well as additional capital and liquidity requirements, which could outweigh potential cost savings. UBS Chief Executive Officer Sergio Ermotti has long complained that “too-big-to-fail” rules in Switzerland were creating headwinds for the country’s largest lenders.
A combined bank “could become a size issue for Switzerland” and new regulatory requirements “are not favorable of a mega bank merger,” JPMorgan Chase & Co. analysts Kian Abouhossein and Amit Ranjan said in a note.