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The new size of UBS, including CS, offers opportunities, say experts. Bigger doesn’t necessarily mean more profitable.
Author: Charlotte Jacquemart
“The size of a bank is not a problem if you are focused and run it well,” said UBS boss Sergio Ermotti in mid-March. Today the problem is no longer “too big to fail”, but “too small to survive”. The financial market seems to believe Ermotti: UBS shares have recently been worth over 21 francs again – more than they have been since 2015.
The merger is a huge opportunity to better position the bank as one of the leading global wealth managers.
Financial analysts are not surprised that investors are now positive about the integration of CS into UBS. Michael Klien from Zürcher Kantonalbank sees several reasons: The merger is a huge opportunity to better position the bank as one of the leading global asset managers. In Switzerland, too, UBS is presenting itself strengthened together with Credit Suisse.
The economies of scale
Above all, Klien is thinking of economies of scale: UBS could sell more financial products and services to more customers in more regions – and ideally with the same or even falling costs, primarily on the personnel side. “That means, among other things, more income per person and only one instead of two IT systems for the entire business.”
Legende: Keystone/GEORGIOS KEFALAS
Finance professor Roland Hofmann from Zurich University of Applied Sciences sees these economies of scale occurring primarily in the international wealth management business, where UBS is already number one and is now becoming even bigger. “UBS already manages $3 trillion today. In addition, there are now 400 to 500 billion from CS.”
“In this business for very wealthy clients, who often also operate globally, size and global presence are of course relevant,” emphasizes Hofmann. Relevant because UBS can sell products and services even more widely than before. This will further strengthen the bank’s position. He also expects such economies of scale in the Swiss business and in the business with investment funds.
Is bigger definitely better?
Size as an advantage, because you can become more profitable and efficient. Science is also concerned with whether this is actually the case. Economics professor Alfred Mettler from the Swiss Finance Institute notes that there are many studies on the question of whether large banks are more successful. But the results are relatively meager.
According to Mettler, the results show that size does play a role for small and medium-sized banks, which also has something to do with fixed costs. In the case of the very large banks, however, this effect cannot really be proven: “And if it is, then the effect is only very small and is often refuted in another study.”
If UBS manages this integration, it will be a stronger and better positioned bank than before.
But science is also examining whether banks are more profitable if they offer everything – lending, wealth management, asset management, investment banking. But even here the scientific evidence is very meager, and there is actually no study that confirms the advantages of a full range of products, says Mettler.
Nevertheless, Mettler assumes that UBS could emerge from the merger with CS as an even more successful bank. To do this, however, you have to get the integration right and make good decisions about what should and shouldn’t be included: “If UBS manages this integration, it will be a more solid and better positioned bank than before.” Incidentally, if Sergio Ermotti succeeds in this sensible integration, UBS should be about as big as it was before the financial crisis.