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UBS/CS tie-up has dealmakers concerned about plight of Swiss mid-market financing

UBS’s absorption of Credit Suisse will leave a gaping hole in the Swiss mid-market debt financing market as two become one, dealmakers and financiers said during Mergermarket’s Switzerland conference. 

There is a funding gap left by taking out Credit Suisse and while local Swiss Kantonalbanken, such as the Zürcher Kantonalbank, are there to close the gap at the lower end of the mid-market, deals that require more than EUR 20m to EUR 30m of debt are likely to be impacted, said dealmakers at the forum which took place in Zurich today (20 September). 

“You don’t have competition anymore,” Christian Waldvogel, Managing Partner at Renaissance, who is close to a number of Swiss medium-sized enterprises, said. 

“They were fighting like crazy against one another. Today you go to one and that's it. Now, whatever their conditions, that will be your conditions," he said. "It used to be extremely good because they were head-to-head competing,” he told the audience at the Dolder Grand Hotel overlooking Zurich. 

UBS announced in June that it had completed the takeover of its Swiss rival, a deal that is still viewed with both suspicion and fear and entails far-reaching consequences for investment banking in Switzerland and abroad. The new entity surpasses other European rivals like Deutsche Bank and Barclays, but the integration of the businesses has left some questions about the continuity of some its units with USD 10bn (EUR 9bn) of cost reduction to improve its returns by 2026, as UBS reported in August. 

The large cap deal making space won't be harmed with Credit Suisse gone, as there are enough foreign banks to fill the gap, said Björn Lauschke, who heads up Capvis' debt advisory practice. 

“For us it’s a problem because most of our smaller- mid-sized companies would only talk to Credit Suisse or UBS to structure the deal, and there was healthy competition and we always got very good financing,” he told the audience.  

It is not so much a problem of liquidity but of structuring, he said. "There is still enough liquidity in the small mid-cap market because Kantonalbanken can take large tickets, but you need to have an underwriter, and there’s one missing now,” Lauschke noted. 

By and large, Swiss banks will still continue to have a favourable position in the Swiss market and there is not likely to be much competition from German, Italian or other big banks as they often can’t compete with the Swiss banks on pricing or terms, panellists said. 

For funds that operate in Switzerland such as Patrimonium, which has a debt fund set up with Credit Suisse, the day-to-day doesn’t change but future supply might be impacted. "Overall, it's a minor part of our business. Supply will most likely decrease, in terms of the structuring offering, it’s definitely an issue for the Swiss market,” Patrimonium’s director Moritz Frerker, said. 

The initial expectations are that Credit Suisse’s domestic business would be run separately until the business is combined next year and fully integrated in 2025, at which point Credit Suisse’s domestic sponsorship commitments would end. The 167 year-old Credit Suisse branding is already disappearing from the global stage with the melding of its international businesses, where Credit Suisse saw substantial pre-tax losses.  

Ultimately, “Kantonalbanks are getting better and better and able to form clubs, and really support with an amount of debt that suits our requirements, at far better conditions, even than UBS/CS in Switzerland,” said Patrinomium’s Ulrich Mogwitz. “I expect rather positive effects, as it also infuses competition among Kantonalbanks.” 

UBS reported record 2Q profits thanks to its acquisition of Credit Suisse, for which it paid less than fair value. But even excluding the one-off effects, UBS generated a pre-tax profit of USD 1.1bn thanks to a strong performance in its global wealth management division, which grew significantly.