UBS head Sergio Ermotti has recently made pointed remarks about the country's state-owned banks. The reason? New data shows them gaining market share from their larger brethren.
Sergio Ermotti pointed his finger squarely at the cantonal banks not long ago. It was not the combined UBS-Credit Suisse business that was «too big to fail» for the country, it was the 24 state-0wned institutions instead, he maintained at a conference in October. «Statistics clearly show that the cantonal banks, in aggregate, are larger than UBS is.»
The statement was clear enough to prompt a stiff reply. The Swiss Association of Cantonal Banks countered Ermotti's accusations by saying that one could go ahead and make comparisons between different groupings of banks but «you cannot derive any kind of competitive market or systemic relevance related to a single institute from it.» According to them, the numbers mostly show that the type of banking the cantonal institutes pursue is successful.
Preferred Address
The numbers, however, also show something else. The cantonal banks, as a group, have profited for years from client outflows coming straight from the major banks.
Professor Andreas Dietrich and Reto Rey – both from the University of Applied Sciences in Lucerne – found in a contribution to the «IFZ Retail Banking Blog» (German only) that state-owned banks have clearly been the preferred mailing address, particularly in recent years, for clients defecting from UBS and Credit Suisse. Both experts based their findings on Swiss National Bank (SNB) statistics.
Raiffeisen Not Benefiting
The two found that the pace of asset outflows has accelerated between 2021 and May of this year. «A detailed analysis shows that the main beneficiaries of the capital movements were clearly the cantonal banks, which managed to increase market share by a significant 3.6 percentage points», Dietrich and Rey write. About 82 percent of the total outflows seen at Credit Suisse went to the cantonal banks.
The Raiffeisen banks, the second largest grouping of banks after UBS's takeover of Credit Suisse, profited far less. Their combined market share was up only 0.6 percentage points since the start of 2021.
Thomas Gottstein Unhappy
The grudge big bank executives have is backed up by numbers. The cantonal banks, often benefiting from state guarantees, something that lends them particular stability, are their biggest competitors vis a vis the major banks when it comes to client savings deposits.
That is nothing new. Quick-tempered former Credit Suisse CEO Thomas Gottstein was already unhappy about it in 2020. He said the guarantees and tax benefits of the 24 group of banks were distorting competition in the market.
Less than a Third
Gottstein, who was also responsible for the domestic market for a time, had been watching the outflows for years. According to observations made by the two Lucerne-based researchers, both UBS and Credit Suisse have lost a total of 18 percent points in market share since just before the start of the financial crisis in 2006. The pace of withdrawals quickened just before the first bank run on Credit Suisse in autumn 2022. And then both major banks lost over 4 percent market share between the end of August 2022 and April 2023. At the end of May, a total of 28 percent of all client deposits in the country were still held at the two institutes.
«UBS's rescue of Credit Suisse has had a sustainable effect on the Swiss retail banking market», indicated the two researchers in their blog post. They are also not very confident that the combined entity will be able to make up any lost ground with savers.
Sustainable Flow
«It is clear that no flows of money returned to the major banks after the financial crisis, particularly from private clients,», they both maintain. «That is why we assume the shifts in market share could be a sustainable development.»
The only thing is that we are likely to never be in a position to find out. The SNB has decided to stop disclosing detailed volume data according to banking groups sorted by size and type of institution.
