Swiss Banking Giant Rejects Merger Plan

Switzerland’s largest bank rejected Thursday a proposal by its nearest rival to form the world’s second-largest bank, saying a merger would have strained it financially and drawn serious political opposition.

The board of Union Bank of Switzerland decided unanimously against pursuing a combination with No. 2 CS Holding, the parent of Credit Suisse and CS First Boston Group Inc.

Any deal would have created a new force in global banking that would have been rivaled in size only by giant Japanese banks.

But the proposed combination also prompted alarm and reports that a merger might put 10,000 people out of work in Switzerland. The country is already bracing for thousands of cuts expected from the merger of Swiss drug companies Ciba-Geigy and Sandoz.

Union Bank managers, who have been under pressure from some major shareholders to improve the bank’s performance, coupled the rejection with word of expansion plans of their own.

“In our view, a merger would have put great strain on our finances and wouldn’t have worked for political and social reasons,” Chairman Nikolaus Senn said. A merger involving any of the three Swiss banks, including third-ranking Swiss Bank Corp., is unlikely, he said.

All the same, Senn said Union Bank is considering acquiring an investment or asset management company in Europe or the U.S. to add to its existing holdings. The merger of Union Bank and CS Holding would have created the world’s biggest asset manager and the biggest bank owning a major securities firm.

CS Holding said it regretted Union Bank’s rejection of the merger proposal.

A merger between the two biggest Swiss banks could have led to the loss of as many as 10,000 jobs in a country where mass layoffs are almost unknown. It would also have given CS Holding access to the greater assets of Union Bank.

Senn said that differences in the cultures of the two banks would have made it tough to effect a smooth merger. He pointed out that CS Holding had not successfully completed the integration of other banks, including Swiss Volksbank, Switzerland’s fourth-largest bank, which it bought in 1993.

CS Holding Chairman Rainer Gut made the merger proposal to Senn on April 1 during a telephone conversation that was later leaked to a local newspaper.

Union Bank said it was “taken aback” by the suggestion because Gut wanted a decision before Union Bank’s shareholders’ meeting, which will be held Tuesday, indicating that “this could influence the meeting’s outcome.”

Senn said he considers CS Holding’s approach “a coercion” because of Gut’s demand for a very quick decision.

The shareholders’ meeting will feature another round in the long-running battle between Union Bank management and Swiss financier Martin Ebner, whose BK Vision controls the largest single stake in the country’s biggest bank. Ebner plans to oppose Union Bank’s nomination of Robert Studer to succeed Senn as chairman, saying he failed to adequately boost the bank’s profitability during his eight years as chief executive.

Swiss banks are coming under increasing pressure from investors because their returns lag those offered by international rivals.