Switzerland wants to privatize Postfinance, putting it on equal footing with other Swiss banks.

The Swiss government plans a draft law allowing Postfinance to write loans and mortgages, it said in a statement (in German) on Wednesday. It gave no indication of when it wants to open the firm, which will be carved out of the postal service, to outside shareholders.

«The government on January 20, 2021 decided to expand the motion to partially reform the postal organization law due to the results of the consultation phase with a notable element: the entry of Postfinance in the credit and mortgage market should be flanked by giving up the controlling majority of the post office – and indirectly the government – in Postfinance,» according to the statement.

Unusual Bank Hybrid

The issue is a hot potato in Switzerland: systemically-relevant Postfinance is criticized by rivals including Credit Suisse boss Thomas Gottstein for enjoying government backing. The government said it aims for the draft law to respond to concerns over competitiveness, federalism, and financial market stability that were raised during the consultation.

Postfinance is an unusual hybrid: it has held a banking license since 2013, but it isn’t allowed to write loans on its books, thanks to vociferous opposition from its domestic banking rivals. Operationally, Postfinance isn’t in great shape, and hopes that lending will give its profits a boost.

Bitterly-Fought Loan Market

Its larger rivals UBS and Credit Suisse, which dominate the Swiss lending market, alongside cooperative bank Raiffeisen, have signaled they would accept a partial privatization of Postfinance (meaning, a new entrant into the hotly-contested market for credit in Switzerland).

In regulator Finma’s view, Postfinance is currently undercapitalized – and currently doesn’t have the surplus cash to pad its cushion. The government is backstopping this, for now: «As an indirect owner, the government should guarantee that it covers the capital gap» given the postal service and Postfinance's «lower revenue generation.»

This backstop should only be for a limited period of time and offered at market conditions and terms, the Swiss government noted. Experts predict a partial privatization of Postfinance would lead to the Switzerland kissing off several billion for the bank to restructure.