Banking Union

UBS to Create First European-Wide Bank

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Picture Source: Bloomberg
  • Why it matters

    Why it matters

    Consolidating all E.U. operations under one roof could save UBS billions of euros and potentially open the door for other European banks to do the same.

  • Facts

    Facts

    • UBS plans to consolidate its 11 banking licenses across the European Union into one “E.U. Passport” valid for the entire 28-nation zone.
    • Analysts estimate the bank could save between €2-3 billion in reduced capital requirements alone.
    • Frankfurt is the front-runner to become the headquarters of the new E.U. subsidiary.
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Switzerland may not be in the European Union, but the country’s largest bank is about to become a pioneer in the 28-nation bloc.

UBS is pledging to merge its E.U. operations into a European-wide subsidiary — perhaps based in Frankfurt, Germany’s banking capital, Handelsblatt has learned.

That would make Switzerland’s largest bank, ironically based in a country outside the European Union, the first major financial institution to use new banking rules designed to create a common E.U. market for banking services.

The Swiss bank’s decision marks the clearest signal yet that a major consolidation is afoot in Europe’s financial industry. The introduction of common rules for the 19-nation euro currency zone and the promotion of the European Central Bank as the primary banking supervisor for the continent, have fed speculation that consolidation could be imminent.

UBS is planning to run its entire E.U.-wide operation out of one location.

UBS is planning to run its entire E.U.-wide operation out of one location. A preliminary decision will be taken in the coming weeks, and Frankfurt is considered the front-runner. Talks with Germany’s banking regulator Bafin are already well underway.

The individual banking license that UBS has in 11 European countries will be surrendered over the next one to two years over talks with regulators. The license will be exchanged for a single “E.U. Passport” that is effective for all 28 states in the union plus the three countries that are part of the European Economic Area.

UBS would not comment on these developments.

Such a drastic reorganization has actually been possible for quite a while in Europe, but sources said the introduction of common banking supervision under the ECB in November 2014 is what for the first time made this an attractive model for doing business.

UBS has big hopes that the move will help revive its E.U. operations, which have been suffering from a lack of support in recent years.

“The ECB supervision has given us hope that the markets will harmonize more effectively,” said one insider at the bank, who declined to be named.

The fact that a bank from Switzerland should be the first to take the plunge is not as odd as it sounds. Swiss banks have long complained that they are handicapped in the European Union. Unlike their E.U. competitors, they do not have unrestricted access to customers in, say, France or Germany.

One small Swiss bank – Julius Bär – has already taken the plunge.

In 2013, it renamed its German subsidiary Julius Bär Europe, which now serves as a platform for all the bank’s European operations. Its branches in Britain, France or Spain merely serve as consulting points for regulators, but are no longer independently active in deposit and credit operations, according to Gerhard Grebe, the head of Julius Bär Europe.

UBS hopes the move will revive its E.U. operations, which have suffered in recent years. The bank is generating a double-digit percentage return on equity in the region and plans to triple profit in three years under the plan.

The potential advantages of such a banking consolidation could be enormous. UBS’ capital requirements in the European Union alone should fall by about 10 percent, or by about €2.3 billion, according to analysts.

Added to this are massive cost savings, as complex management systems, control structures, IT-platforms and regulatory demands of each E.U. country are consolidated into a single operation. The subsidiaries in Italy and Spain, for example, would be converted into regional branches.

Consolidating IT alone could save hundreds of millions in costs, according to the Swiss bank. A common E.U.-wide IT platform has been in the works for two years and is being rolled out, replacing a patchwork of 12 different trading platforms and six software systems used in the European Union.

Germany already switched to the new system last year.

Britain and Italy will be next.

Swiss rival Credit Suisse is also looking at merging some trading platforms across the continent, according to board member Hans-Ulrich Meister. But the bank doesn’t plan to go nearly as far as UBS and Julius Bär.

 

Daniel Schäfer is the editor of Handelsblatt’s finance section, and Robert Landgraf is the section’s deputy editor. Both are based in Frankfurt. Holger Alich reports for Handelsblatt from Zurich, Switzerland’s financial capital. To contact the authors: schaefer@handelsblatt.com, landgraf@handelsblatt.com and alich@handelsblatt.com

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