The Signa debacle casts a harsh spotlight on the businesses of state-guaranteed domestic banks as most have become powerful national players with significant business outside their respective cantons, finews.com observes.
The collapse of the Austrian property group founded by Rene Benko has very clearly exposed several Swiss banks. But it has been particularly revealing of the business practices of a number of cantonal banks.
A few of them disclosed in recent days that they had helped finance a certain real estate company belonging to several investors. The media reports at the start of the week then subsequently connected the dots by maintaining that the activities were linked to companies in the Signa conglomerate that Benko had founded.
Sharp Contrast
Subsequently, it was ostensibly confirmed that the Aargau, Valais (Wallis), and Obwaldner Cantonal Banks participated in a syndicated loan stemming from 2020's takeover of the Globus department chain by Signa and Thailand's Central Group, with the lending apparently secured by the chain's properties.
The Aargauer Cantonal Bank has 73 million francs outstanding, while Valais and Obwalden each have about 24.3 million francs.
Far From Home
Apart from that, several media reports indicate that the Graubunden (Grisons) Cantonal Bank has an unpaid 60.8 million euro loan with Signa and the Zurich Cantonal Bank about 11.1 million euros although neither has disclosed anything yet.
What we can say for certain is that all involved cantonal banks, apart from possibly Zurich, have pledged debt collateral outside their home canton and did business with an international conglomerate.
The contrast between a bank that should be very local and a far-flung worldwide business is a sharp one.
«Not unusual»
In reaction to that, a spokesperson for the Association of Swiss Cantonal Banks, an umbrella organization for all 24 banks, stated: «The cantonal banks are important players in domestic finance. It is not unusual for them to participate together with other lending institutions on large, syndicated credits.» With that, it is also inherent that the pledged collateral is potentially located outside the specific business areas of each cantonal bank.
The association spokesperson maintained that all their activity adheres to state (cantonal) laws, and regulatory rules, as well as the strategies set by their owners (including the state government), all of which require that a material proportion of the business should be within the canton itself.
Not For a Long Time
All the state-guaranteed institutions maintained after being outed that the preponderance of all mortgage lending was located within their specific cantons. The Obwaldner Cantonal Bank indicated in its statement: «92 percent of the mortgage properties are located in Canton Obwalden and nearby cantons. The Obwaldner Cantonalbank does not finance property outside Switzerland.»
But this statement also clearly proves something else. Cantonal Banks no longer limit business to their home canton and they have not done so for a long time.
National Business
Given that, it might be fitting to call them «Cantonal and Near-Cantonal» institutions. But that probably wouldn't fit on their logos all that well.
But even that is not the whole and complete truth. For years, the larger cantonal banks have acted as national entities. Some things that come to mind are the Swisscanto fund label of Zurich's Cantonal Bank, the country-wide business of Basel Cantonal Bank's Bank Cler, and the many shareholdings the Graubunden Cantonal Bank holds in Zurich, including BZ Bank, Twelve Capital, an asset manager, Albin Kistler, and the Bellerive private bank.
No Limit Digitalization
That is not even getting into digitalization. The offerings of the cantonal banks – Zak, Frankly, Radicant, and Bitubi, to just name a few of the most prominent – are available in the entire country and directed at clients who already bank with others. Having a Swiss-wide business is allowed and even explicitly stated in the law underpinning the Aargau Cantonal Bank.
On the other hand, the latter also benefits, as do the others that have lent money to Signa, to a full and complete guarantee from their owning cantons that is directly tied to the activities they undertake within cantonal borders.
That is the main difference between the cantonal banks and Valiant, which is listed, and also active in different regions of Switzerland as part of a group of 219 Raiffeisen banks.
Explicit State Guarantees
This key difference is something that will likely be up for discussion in the future, at the latest when the competitive consequences of UBS's rescue of Credit Suisse come to light.
UBS management likes to discuss the market power of the cantonal banks, as they are, taken together, the largest actors in Swiss domestic banking.
Tough Discussion
The conversation is likely to be very fraught given the increased market power that the cantonal banks have gained in recent years vis a vis the major banks, particularly in the retail business.
Professors at the University of Applied Sciences in Lucerne recently postulated the view that cantonal banks have been profiting for years from client deposit outflows from the major banks.
Ideal Instrument?
That trend only strengthened after Credit Suisse's collapse. Since 2021, the cantonal bank's market share has risen by 3.6 percentage points, a significant gain, the authors of the study claimed. About 82 percent of the outflows from Credit Suisse went to the cantonal banks.
The level of activity by cantonal banks is not likely to decline anytime soon. New opportunities are there in the corporate client business after Credit Suisse's disappearance from the market, something that the cantonal banks with a national wingspan can possibly take good advantage of.
Syndicated loans, as with Signa, could be an ideal instrument for that.
