Since the CS takeover, the cards have been reshuffled in the business with Swiss corporate customers. Thanks to its size, Raiffeisen is in a good position to gain market share.
Raiffeisen is the second largest banking group in Switzerland after UBS.
Gaëtan Bally / Keystone
Raiffeisen is a giant. After the disappearance of Credit Suisse, it is the second largest bank in Switzerland with a balance sheet total of over 300 billion francs, behind UBS, which has 320 billion in its home market. The fact that it is not perceived as huge is due to the fact that it is decentrally organized and has regional roots with 218 autonomous Raiffeisen banks. Raiffeisen has also made fewer headlines since the scandal involving former boss Pierin Vincenz.
Raiffeisen is a giant, especially when it comes to mortgages. It had 215 billion francs outstanding at the end of the first half of the year and was able to increase its market share to 18 percent, making it number 2 here too. But the demise of CS has opened up new growth opportunities for the cooperative bank: According to CEO Heinz Huber, the bank wants to grow not only in the pension and investment business, but also in business with corporate customers – this could be a shop in the city center or a large company with billions in sales.
After being incorporated into UBS, CS left a big gap. For example, CS was often the lead bank for syndicated loans. Larger companies often had one relationship with UBS and one with CS. Now they only have one connection with UBS; or they became UBS customers without wanting to.
CS exit is an opportunity for Raiffeisen
For banks that were in the second row in business with larger corporate customers, the disappearance of CS is a great opportunity. Raiffeisen was able to increase its credit volume for companies by 2 billion francs in the first six months of the year to over 50 billion. Raiffeisen CEO Heinz Huber says that there is “a lot of traction” in this area. 3,000 new companies have joined Raiffeisen, mainly medium-sized and large companies.
“Companies are reorganizing their credit relationships after the end of CS,” says Roger Reist, who is responsible for corporate business at Raiffeisen, and that is one of the main reasons why Raiffeisen is currently able to grow so strongly in this area. After the CS takeover, Raiffeisen prioritized this business and allocated more capital to it, he says, adding that they are still pursuing a “cautious risk policy.”
As the second largest Swiss bank, Raiffeisen is in a good position to meet the credit and financing needs of companies looking for a domestic alternative to UBS. Raiffeisen also has a large and secure balance sheet, which enables it to grow its lending business – in contrast to many regional or cantonal banks, which only offer SME financing for risk reasons.
It is obvious that companies are looking for other partners in addition to UBS, as the major bank is said to have tightened its credit conditions in some cases. UBS Switzerland boss Sabine Keller-Busse recently said in the NZZ: “We have to reprice unprofitable relationships, but we have made this transparent to customers.”
This is because several of CS’s credit lines are said to have been in deficit. The bank that has since collapsed is said to have accepted lower margins on corporate loans, and other areas such as foreign exchange or capital market business cross-subsidized the credit system. UBS wants to move away from this practice of CS. However, this will require loans to become more expensive, also in view of the higher interest rates.
No price war on corporate loans
Raiffeisen has only been seriously involved in the corporate banking business for around ten years. However, it has managed to establish itself as number three in this business behind UBS and ZKB. However, it is significantly larger than the cantonal banks and, given its balance sheet strength, the bank has the potential to challenge UBS for larger corporate clients.
Raiffeisen is already doing well in lending to SMEs. But it is now trying to get involved in areas that were previously the preserve of large banks or foreign institutions, such as export financing, international payments or capital market transactions, where UBS dominates the domestic market.
Raiffeisen has an offering in all of these areas, albeit in different forms. “We also offer leasing and currency hedging transactions. These are areas where CS has traditionally been very strong,” says Reist. Financing solutions are offered at regional and group level. This also takes care of companies that require two- or three-digit loan amounts.
The number of jobs shows that things are going well for Raiffeisen in the corporate customer business: 500 people are working in the area, 60 were newly hired at group level; it is a “strategic business area”. Since the interest rate turnaround, Raiffeisen can no longer rely solely on the “interest rate boost” for higher earnings. The interest result was 1.4 billion francs, 7 percent lower than in the previous year, which also reduced total income and profit.
Raiffeisen must try to compensate for this effect in the investment or corporate customer business. This area now accounts for a fifth of total income. But growth at any price is not an issue; Raiffeisen has no interest in a price war. The bank has a large balance sheet and a very good risk profile, but it also wants to achieve a “reasonable return” on equity, says Reist. That is why it wants to grow profitably and not differentiate itself through cheaper loans.
A rapid change in competitive conditions is therefore not to be expected. Reist admits that the market shifts are taking place more slowly than expected, partly because some of the loan agreements run for 3 to 5 years. However, Raiffeisen can assume that it will continue to benefit from the “CS effect” in the corporate customer business in the next one or two years.
Weko’s concerns unfounded
The fact that market conditions are changing would be in the interest of the Competition Commission (Weko). Domestic corporate customer business is an area that is causing concern from a competition perspective following the CS takeover. Weko emphasises this in its Statement for Finma, which approved the UBS-CS merger without any conditions.
The competition authorities write that UBS has a market share of almost 40 percent in corporate banking, which is an indication of a “dominant position”. In corporate banking for large companies, there are currently “no fully-fledged alternatives” to UBS that could offer all the services required from a single source. In particular, the Weko sees the ZKB, other cantonal banks “and in certain areas” the Raiffeisen banks and foreign banks as “potential competitors”.
However, corporate banking expert Reist does not share this assessment: There are enough providers. The cantonal banks, foreign banks and also Raiffeisen have expanded their lending commitments. The competition for Swiss corporate customers will continue as long as companies are willing to work with foreign banks for certain services, he says.
A “fully-fledged” and viable Swiss alternative to UBS in the corporate banking business, as defined by the Competition Commission, would nevertheless be desirable. This is because domestic banks offer clear advantages. According to Reist, they offer stability above all, as the domestic market enjoys high priority. Foreign banks may be less reliable and could withdraw from the Swiss market after a few years.
