Swiss bank merger raises concerns

This week saw the scalp taken of one of the best-known names in Swiss banking after UBS bailed out rival Credit Suisse.

Swiss financial regulators are believed to have forced the deal in a bid to prevent another banking crisis providing taxpayer backing to the tune of SFR 260 billion (GBP230 billion) in funding and guarantees.

The intervention has allowed UBS to snap up Credit Suisse for USD3.25 billion (GBP2.6 billion) – which is well below its market value – and create a business with more than USD5 trillion in total invested assets.

Officials describe the deal as the best way to stave off a repeat of the Global Financial Crisis, but there is now serious doubt over the future of thousands of jobs at the merged institution.

Perhaps ominously for those awaiting their fate, UBS chairman Colm Kelleher said the deal was “attractive for UBS shareholders but as far as Credit Suisse is concerned, this is an emergency rescue”.

While the deal may have averted another credit crunch, the series of upsets this month including the collapse of SVB, follows a difficult 2022 for the global markets and leaves the banking sector’s future uncertain.

However there are those in the asset management world who remain optimistic. This week we spoke to Peter Kraus, portfolio manager of Berenberg’s European Small Cap fund and the European Micro cap fund, who believes 2023 will be better than last year, at least for his investment universe.

Kraus predicts a return to ‘normal’ for inflation and interest rates, which plays well to the innovative, start-up companies in which he invests.

However, he notes that barriers to entry for others looking at the small and micro-cap world remain, notably in the intensive research demands.

This leads us to observations from Exabel, a fintech that argues fund managers do not make enough of alternative data.

Alternative data is the non-traditional information that provides an indication of future performance such as company filings, broker forecasts, and management guidance, and only 23 per cent of fund managers say they make excellent use of it.

Further, just 28 per cent of investment professionals surveyed by Exabel think the funds they help to manage do a “very good job” in integrating alternative data into their processes.

It is probably unsurprising to learn that part of the problem is the sheer volume of data that land on analysts’ desks. More than half of investment professionals say there is too much data and it is hard to prioritise.

However all is not lost; Neil Chapman, CEO of Exabel predicts advances in domain specific technology, will rapidly improve fund managers’ insight from alternative data.

Let’s hope so.

Gill Wadsworth, Editor


2022 was “awful” for European equities, admits Peter Kraus, portfolio manager of Berenberg’s European Small Cap fund and the European Micro Cap fund, but he says there is no reason to overlook them this year.
A new study from fintech Exabel asked portfolio managers and investment analysts who focus on fundamental investing on their use of alternative data and found that just 23 per cent described their organisation’s process for using it as ‘excellent’. Some 63 per cent described it as good, but around one in eight (12 per cent) said it was average.
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