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Credit Suisse takeover poses new risks for Swiss economy -

OECD

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Swiss economy should be able to absorb resulting job

losses

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OECD raises competition concerns in Swiss banking

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Swiss economic growth seen at 0.9% in 2024, 1.4% in 2025

(Adds details of property prices in paragraphs 17-18 and

government response, 12)

By John Revill

ZURICH, March 14 (Reuters) - UBS's rescue

takeover of Credit Suisse a year ago has created "new risks and

challenges" for the Swiss economy, the Organisation for Economic

Cooperation and Development said on Thursday, the latest

international forum to raise concerns about the deal.

The acquisition may have safeguarded financial stability,

but also raises questions about UBS's domestic dominance and the

need for stronger financial regulation in future, the OECD said

in its economic review of Switzerland.

The biggest bank merger since the global financial crisis,

orchestrated by the Swiss state to avert Credit Suisse's

collapse, created a group whose assets dwarf the economic output

of the country.

"The state-facilitated acquisition of Credit Suisse by UBS

... effectively stabilised the growing crisis within Credit

Suisse and tamed risks of spill-overs, thus safeguarding

financial stability, but it raises new risks and challenges,"

the OECD said.

"UBS - already a global systemically important bank before

the merger - has thus become even larger and according to the

'too big to fail' (TBTF) regulations, it must meet even stricter

regulatory requirements," it added.

The Financial Stability Board, a grouping of central

bankers, treasury officials and regulators from the group of 20

top global economies, last month highlighted the risk a failure

of UBS would pose to Switzerland and urged Bern to strengthen

its controls on banks.

The Swiss government is due to make proposals in the next

few months on how to toughen up regulations covering big banks,

including increasing the powers of the primary supervisor,

FINMA, which has demanded better tools.

The OECD raised questions around competition, with the new

combined bank having a roughly 25% share of domestic deposits

and loans, according to data from the Swiss National Bank.

Switzerland's competition commission favours a deeper

investigation into UBS's dominance of certain parts of the

market, Reuters reported last month.

UBS CEO Sergio Ermotti has dismissed critics' warning about

the lender's size, saying it was low risk, as well as stronger

and more diversified after the acquisition of Credit Suisse.

In its report, the OECD also highlighted how efforts by

investors seeking compensation for 16 billion francs of Credit

Suisse's Additional Tier 1 (AT1) bonds that were written off

could lead to "costly litigation and uncertain outcomes."

The Swiss government said it noted the OECD's analysis and

the recommendations made in the report.

In its economic forecasts for Switzerland, the OECD

predicted the economy would grow 0.9% in 2024 and 1.4% in 2025,

below the country's long term average growth rate of 1.8%, and

the government's December forecasts of 1.1% and 1.7%,

respectively.

"Weak foreign demand, tighter financing conditions and

heightened uncertainty weigh on the economy," the OECD report

said.

Still, the buoyant Swiss labour market should be able to

absorb the "sizeable" jobs losses the bank merger will bring,

the Paris-based organisation said.

The ultra expensive Swiss housing market had shown signs of

cooling down, it also said, but vulnerabilities remained - with

properties estimated to be overvalued by up to 40%.

The price for an average apartment in Switzerland has risen

to just over 1 million Swiss francs ($1.13 million), according

to the Swiss Real Estate Database.

In Zurich, the average price for an apartment is now 1.8

million francs, up from 1.2 million francs in 2013.

($1 = 0.8829 Swiss francs)