Thorsten Pauli, the capital markets head of Bank of America Merrill Lynch sees no reason to panic, despite the rapid increase in Covid-19 infections. He says that both banks and corporate clients are better prepared, speaking in an interview with finews.com.

Corona cases have surged past the spring records, companies and small businesses are facing a second wave with no security net to speak of. Swiss Finance Minister Ueli Maurer last week emphasized that there will be no repeat of the corona loans he made available in spring: «We cannot and should not provide another extensive program.»

The banks, which funneled 16 billion francs worth of loans backed by the government to companies in need, are currently on standby. The question that economists are mulling is whether Switzerland will slip into a second recession.

Well Prepared for What Might Come

Thorsten Pauli, an experienced investment banker with time spent both at UBS and Bank of America Merrill Lynch appears pretty relaxed in the discussion with finews.com. As head of the capital markets business in the equity division in German-speaking Europe, Pauli is close to the corporate clientele of the bank. He says: «I don't think we will lapse quickly into the same panic mode as in March again – March 2.0 so to speak.»

He is in daily contact with clients and observed over the months how hard Swiss listed companies, including a great many medium-sized firms, had prepared themselves for what might come. They accumulated liquidity, prepared staff for home office, and adjusted supply chains and business models to the changing environment. Most bosses and treasurers today assume that the pandemic will stay with us until 2022, he added.

Not to Be Underestimated

While state and society are still trying to find the right answers to the crisis, corporate Switzerland has come a long way in its preparation, Pauli said. It is unlikely therefore that corporate Switzerland will need to launch into a run for liquidity anytime soon.

And still, the banker warns about becoming complacent, because smaller firms might feel the brunt of the second wave while the big companies are capable of riding it out. It is to be expected that smaller companies and those with more traditional models of business will get another hard hit, Pauli said. And together, those firms are also relevant to the system. One should therefore never underestimate the economic repercussions of a second wave.

Six Months That Feel Like Six Years

Pauli's own industry has also adapted to the new reality – Pauli himself had done his 16-hour-days in his office at the height of the first wave, as finews.com had reported. Outside the public's gaze, bankers had grown alarmed and the banks started accumulating cash.

«It is only six months since the first wave of corona. In investment banking, it feels more like six years.» That segment of banking seems capable of withstanding the worst, with both capital markets as well as the business with mergers and acquisitions remaining robust in the face of adversity. Most of the business can be conducted by applying digital tools, including the complex world of mergers and acquisitions.

Unfrozen

As classic investment banking went into freeze mode in spring, the capital markets expert now expects an increase in the number of transactions. One reason is that the consolidation is already underway in some sectors of the economy, spurned by the crisis, and the other reason being an attempt by companies to ready themselves for the time after the virus.

Most sought after are the startups in the software industry, as many industries are looking for their technology and know-how in a bid to match the trend to do their business digitally, Pauli said. The companies tend to rely on convertible bonds to finance their acquisitions. They know that convertible bonds are more easily restructured than bonds, helping maintain flexibility in a time of uncertainty.

A High Price

M&A shouldn't stop at banking, Pauli said, adding that European banking seems ripe for some consolidation, with surplus capacity in the business. Still, this is more of intellectual consideration, he added, because no CEO and no politician would touch the case of a merger of a systemically relevant bank.

In almost all cases, huge overlaps existed and synergies could only be seized upon by releasing thousands of staff. A high price, Pauli said. Not least because a merger tended to hamper day-to-day business and throw back the development of a firm by an average of three years.