The head of Zurich's Cantonal Bank dims market hopes related to the collapse of Credit Suisse. The pie is too small for that, he indicates at a high-powered podium discussion related to Swiss finance.
There was a tone of slight resignation when Urs Baumann started to speak about the consequences of UBS's government-prompted rescue of Credit Suisse in March at the «Finance Circle» (German only) earlier this week in Zurich. «The impact from Credit Suisse will not be as strong as is generally believed», the chief executive of the Zurich Cantonal Bank said about the expected flows of assets into the Swiss banking sector after the emergency action related to what was once Switzerland's second-largest bank. «I have not always succeeded even though I tried many times to make people understand that.»
Baumann's assumption is that 40 percent of the 4.5 billion francs in revenues that Credit Suisse makes in Switzerland will make it into the market - over the next three years. That number has to be compared with normal asset shifts of up to 6 billion francs in any normal year involving money that corporations, institutions, and private and retail investors regularly shift between banks.
Money in Motion
It is also not a very large number in comparison to the roughly 50 billion in revenue that Swiss banks make in total annually. The expected impact from Credit Suisse's so-called «money in motion» will have a 0.8 billion franc impact on revenues this year and it will be about 0.5 billion above the normal number expected in 2024 and then again in 2025.
«With that, the ZKB (the bank's acronym as spoken in German) is, as one of the two remaining universal banks in the country, well positioned to take advantage of the business being freed up.» But clients also have plenty of choices. There are about 110 retail, affluent, and commercial banks as well as 45 large wealth managers when foreign banks operating in the country are included. The number of institutions providing investment banking services to larger corporate clients is about 20. And it was specifically in Swiss investment banking that Credit Suisse was a key actor.
Plenty of Cantonal Banks
That means that most clients have a large number of services available to them. Little will change for private clients, small companies, and institutional investors. Larger, more global corporations will be able to access the international capital markets.
Baumann assumes that only large domestic Swiss companies with a strong home basis will see any impact. They could see some limits to their ability to access Swiss credit and capital markets. «ZKB alone can't compensate for that», Baumann says. However, that will only be possible if they cooperate with other cantonal banks to provide syndicated lending services.
Same Strategy
«The collapse of Credit Suisse doesn't change much for us, at least not at first. We don't intend to take their place», Baumann emphasized. Beyond everything, the ZKB has to fulfill its duties with respect to the Canton of Zurich.
When it came to discussing the new, combined UBS, he warned about overregulation or imposing limits in a misguided fashion. The consequences of any future steps have to be kept in mind. «We would have to foreclose on about 60 percent of our mortgages if an unweighted equity ratio was set at 15 percent,» he warned. He also said that other measures to increase capital were also not good ones. «We would either have to ask the canton for more financing or we would not be able to report profits or pay dividends for years.»
Baumann also warned about making healthy institutions suffer. «The regulation has to be imposed in places where the mistakes were made, and not where there were no mistakes.»
Soft Touch Regulation
Roman Studer (image below), the CEO of the Swiss Banking Association (SBA), also fears scattered, shotgun-type regulation following Credit Suisse's collapse, particularly as it could distort both domestic and international competition. He repeated the position of his association that a fundamental root cause analysis needs to take place related to what happened and that it will take a while until that exercise is complete.
(Image: SBVg)
«It was Credit Suisse's failure, not the system», Studer said. Any adjustments in regulation need to be targeted and effective. It is also not Switzerland alone that is looking at reforming «too-big-to-fail» rules involving systemically relevant institutions. What happened with Credit Suisse is also being analyzed in Europe, the US, and at the Financial Stability Board, as finews.com reported.
Built for the Past
«Regulation is always built for the last crisis», Studer says. One has to evaluate whether there are other warning signals that one has to take into account. Credit Suisse's case showed that the criteria that show the institution was highly at risk only became apparent after it was already too late. «We possibly have to do something related to liquidity management and focus more on other factors such as business, complexity, legal risk, reputation, and the ability to change course», the SBA head maintained.
The Swiss financial center has managed to remain attractive after the Credit Suisse crisis. According to him, its high quality, professionalism, the country's stability, and currency, are all intact.
UBS Has A 50:50 Chance
Studer gave the newly enlarged UBS the top grade when asked, on a scale of 1 to 10, how positive he was that it would not need to be rescued in the future. Zurich Cantonal Bank Baumann gave it an 8.
The renowned bank historian Robert Vogler, who started the forum with an extended perspective of Swiss banking history over the past 200 years, was not quite as positive. «I see the chances of UBS surviving in the long-term as being a 5 or a 6, I hope 6», he indicated.
