The head of Zuercher Kantonalbank doesn’t like to see Postfinance being allowed to sell mortgages as the government has proposed. His own best estimates for the future of the property market in Switzerland make for bleak reading.
The prospect of Postfinance being allowed to expand into the mortgage business is not going down well with Swiss bankers. Martin Scholl, as chief executive officer of Zuercher Kantonalbank (ZKB) himself the head of a state-owned bank, is no exception. He thinks that catching up in an already mature market will increase the risks for Postfinance, he told «Finanz und Wirtschaft» in an interview (behind paywall).
«The mortgage business requires a lot of know-how,» said ZKB chief Scholl. «It is very risky to pursue an expansive strategy at the pinnacle of a cycle.»
Unrealistic Rates Offered
Scholl compared Postfinance’ hypothetical target of some 25 billion Swiss francs ($25 billion) in mortgages with ZKB’s annual growth of 2 billion francs in this business. If the Bern-based company were to apply a conservative rate strategy, the pace of growth would hardly be attainable within a reasonable period of time.
Scholl also made it clear that he wasn’t overly impressed by the performance of Postfinance. The company had clearly offered unrealistic rates to boost client assets and thereby increased the problem with the allocation of the money, he said.
A Widely Shared Concern
The government’s decision to allow the finance arm of the postal service to widen its product offering would not help Postfinance solve its problem but actually aggravate the situation by potentially adding another problem.
Even without the entry of a strong new player in the real estate market, the business was in for some difficulties, Scholl believes. Residential properties bought as an investment are his main concern, very much in line with what the Swiss National Bank and the financial-market regulator Finma have been saying.
A No to Mortgage Platforms
«The risk of a correction is increasing. Losses have to be expected,» he added. But unlike the crisis that occurred in the 1990s, banks wouldn’t be worst off, he believes. «Semi-professional investors such as mortgage platforms and small pension funds» will suffer the most.
Hence, Scholl also has little time for mortgage platforms, even if ZKB itself can sell mortgages online.
Investments in Private Equity
«In a seemingly riskfree environment, many investors and loan takers seem to ignore who their counterpart and mortgage provider is,» said Scholl. «The day will come when this will change. That’s why we don’t believe in the mortgage platforms.» Instead, Scholl and his ZKB bank on growth in wealth and asset management. The CEO may even invest selectively, for instance in private equity, he added.
