Switzerland's key banking lobby faces a key test as tensions between major banks and domestic lenders heads for a showdown, finews.com has learned. Lobby boss Herbert Scheidt hasn't proven adept at building bridges.

The Swiss Bankers Association, or SBA, is discussing splitting the 250-member strong organization after months of infighting between factions with dramatically different interests, according to several people familiar with the matter. «Every group would lobby for themselves – like domestic banks and the big banks already partially do today,» a person familiar with goings-on in the SBA's board said.

In Chairman Herbert Scheidt's third year at the helm, the rift between the SBA members including UBS and Credit Suisse, boutique wealth managers, and domestic lenders largely focused on retail, corporate, and mortgage business has only deepened. Scheidt is viewed among the SBA's members as unable to build bridges, and has cultivated a hierarchical approach to management.

Tension Worsened Since '18

A potential break-up is noteworthy because the lobby's roughly 250 member banks have collectively managed huge industry-wide challenges including probes into dormant war-time accounts and a U.S. tax crackdown which ran up more than $10 billion in fines. The Basel-based lobby is the first port of call for responses to political and industry developments like these.

The tensions aren't new: finews.com first reported on the simmering conflicts due to the disparate strategies, size, market segments, and business models of the banks nearly two years ago. Since then, the tension has only worsened, the people said. A spokesman for the SBA said the lobby's diverse membership means not all banks share the same opinion.

Big Bank Bonus Culture

The reasons are multi-faceted: for one, UBS and Credit Suisse are perceived by domestic-focused lenders to have distanced themselves from the Swiss financial center. Issues like executive pay and banker bonuses contrasts with the big banks' difficulty strategically – and their inability to adapt their business models.

Local lenders are weary of persistent complaints from UBS' and Credit Suisse's C-suite about regulatory and capital requirements and capital. Swiss bankers are frustrated about costs for rules such as MiFID II rising – especially since Switzerland is left waiting on market access to the European Union.

Infighting Begun

That the big banks, which maintain an operation in Brussels solely devoted to their interests, have lobbied for an institutional framework with the bloc has gone down like a ton of bricks in Switzerland. Another person familiar with the tensions said infighting among Swiss banks has worsened perceptibly. In addition, many lenders are fighting each other in the «newly» discovered home market – against a backdrop of negative interest rates, which exacerbates competition.

Specifically, Raiffeisen Chairman Guy Lachappelle and UBS' head Axel Weber have tussled, the people report. With a somewhat rural basis of thousands of Raiffeisen bankers, Lachappelle's worldview is bound to clash with that of the worldly  Weber, who can be professorial.

Absent Credit Suisse Head

Weber, who has presided the world's largest wealth manager for nearly eight years, takes up a lot of room figuratively, another SBA insider told finews.com. The ex-central banker is impeccably prepped for lobby meetings, speaks at length in a presidial style – as does SBA Chairman Scheidt.

By contrast, Credit Suisse Chairman Urs Rohner has been missing in recent meetings. «If he's here, he usually simply endorses what Weber says,» the person described the embattled Credit Suisse chairman. Some SBA insiders say they resent Weber and Scheidt, both German, dominating the discourse of Swiss banking.

Clashes Slow Decisions

The rupture is slowing response time in decisive matters for the industry like a withholding tax and abolishing stamp tax. Last autumn, the divide within the lobby was obvious in rolling out Basel III capital rules. Specifically, UBS and Credit Suisse insisted on the same rules for all Swiss banks – which the smaller lenders decried as an unnecessarily high regulatory burden.

While there isn't a specific break-up plan yet, many bankers question why their firms are still members of the SBA and are discussing what structural set-up would make more sense in order to better represent the starkly different interests – and how to improve governance.

Reporting by Peter Hody and Samuel Gerber