How UBS fell out with Switzerland’s establishment after rescuing Credit Suisse


UBS staff at a company-wide meeting last month were taken aback by the criticism levelled against Switzerland’s establishment by chief executive Sergio Ermotti and chair Colm Kelleher.

“They were quite ballsy,” recalled one attendee based outside Switzerland. “The tone was that UBS stepped in to save Credit Suisse last year but now we are being punished.”

Other staff said Ermotti had argued that UBS should not be made to pay the price for Credit Suisse’s failure, which was an “embarrassment for Switzerland”.

The forceful comments from two of Europe’s most powerful bankers mark the latest salvo in an increasingly acrimonious war of words between the lender and Switzerland’s all-powerful “trinity” — the finance ministry, central bank and regulator Finma.

Just 16 months after closely collaborating on the most significant bank takeover since the 2008 financial crisis, the two sides are now publicly quarrelling over issues from executive pay to capital requirements.

The deal has attracted controversy, with bondholders who lost $17bn on the takeover launching a spate of lawsuits around the world, and local politicians claiming UBS was handed the “deal of the century” at the expense of the Swiss people.

Entrance to UBS headquarters in Zurich
Local politicians said UBS was handed the ‘deal of the century’ at the expense of the Swiss people © Pascal Mora/Bloomberg

Much of the recent disagreement centres around plans to bolster the country’s financial system after the body blow of losing its second-biggest bank, in a public spat playing out between a group of newly hired leaders who are trying to make their mark on the future of Swiss banking.

“You are seeing quite a bit of shadowboxing going on from people who are trying to establish their authority,” said a banker who was involved in the Credit Suisse negotiations.

Most of the people involved in the four days of tense negotiations that decided Credit Suisse’s fate in March last year have since left.

Within days of UBS agreeing to take over its rival, Kelleher and the board replaced chief executive Ralph Hamers with Ermotti, who had previously run the bank for nine years.

Finma this year brought in Stefan Walter as chief executive after Urban Angehrn, who had led the regulator through Credit Suisse’s final few years, stepped down citing the toll on his health of “permanent stress levels”.

The Swiss National Bank also recently named a new head, Martin Schlegel, who is due in September to take over from longtime chair Thomas Jordan.

While Ermotti and Schlegel have deep roots within their organisations and experience with navigating Swiss politics — with the latter having worked at the central bank for more than two decades — the German Walter is a newcomer, having worked at the European Central Bank for the past 10 years.

Finance minister Karin Keller-Sutter, who was in the job for only two months by the time Credit Suisse imploded, and Kelleher will soon be the only survivors from the rescue negotiations.

The truce among the four biggest institutions in Swiss banking broke spectacularly in April when Keller-Sutter unveiled a set of 22 measures to improve the country’s too-big-to-fail regulations.

While most — such as increasing personal accountability for senior bankers and giving greater powers to Finma — were widely accepted, a recommendation to increase capital requirements caught UBS off guard.

Line chart of Share price and index rebased in € terms showing UBS shares have risen more than 50% since the takeover

Ermotti and Kelleher had spoken publicly about how they did not feel Credit Suisse’s problems were due to a lack of capital, and senior executives at the group said they were blindsided by the ministry’s proposal.

Keller-Sutter poured fuel on the fire during the press conference at which the rule changes were announced by criticising Ermotti’s pay.

The 64-year-old had just been made Europe’s best-paid bank boss after UBS increased his overall package to SFr14.4mn ($15.9mn), with the prospect of rising to SFr20mn in future years.

“I cannot comprehend certain sums,” said Keller-Sutter, who added it would take 30 years for her to earn a similar amount based on her SFr473,000 salary as a Swiss cabinet member.

“I may be a bit old-fashioned, but as a child I once learned that the measure of all things is the salary of a Federal Councillor,” she said. “Well, that hasn’t been the measure of all things for a long time, has it?”

Keller-Sutter has since repeated the criticism in Swiss press interviews.

As Switzerland’s biggest global bank, UBS would be hit hardest by the proposed capital rules, which require increased levels for foreign subsidiaries. The Swiss parliament will vote on introducing them next year.

While the finance ministry has provided little detail on how the capital requirements would be calculated, analysts have estimated it could be an additional $15bn-$25bn for UBS. Keller-Sutter has said such forecasts are “plausible”, much to the dismay of UBS executives who complained that they had been provided with no information to draw up their own analysis.

Since then, the questions of whether UBS should be subjected to higher capital requirements or is too big for the Swiss economy have dominated public debate about the future of financial regulation in the country.

A photographer takes a photograph of the Swiss National Bank offices in Zurich
The Swiss National Bank helped orchestrate UBS’s takeover of Credit Suisse © Pascal Mora/Bloomberg

At the lender’s annual meeting in April, Kelleher said it was “seriously concerned about some of the discussions related to additional capital requirements”.

A month later Walter weighed in during his first public appearance as Finma chief executive, saying he fully supported UBS having to hold more capital to support its foreign subsidiaries.

“The Credit Suisse crisis starkly illustrated the vulnerability of the parent banks,” he said.

The next day, Ermotti hit back, accusing Swiss authorities of allowing Credit Suisse to fail and not taking responsibility for their role in supervising the bank.

“Fourteen months after the Credit Suisse rescue, we are in the midst of an intense and often superficial debate over whether UBS is too big for Switzerland,” Ermotti said during a speech at the University of Zurich. “To be honest, it’s quite surprising how quickly UBS went from being perceived as a saviour to a potential future problem for the country.”

A few weeks later, Ermotti warned that Switzerland risked being overtaken by Hong Kong, Singapore and the US as the world’s top wealth management hub if policymakers overreacted to the fall of Credit Suisse.

“There are too many uninformed, populist and fear-mongering voices in the media, politics and academia, including here at this university, focused exclusively on the danger of having a large bank based in our country,” he said in a speech in Lucerne.

The tension at the top of Swiss finance has led to speculation within Zurich that the public discord is a convenient way of showing the country’s citizens, many of whom believe the authorities handed UBS too generous a deal, that the two sides are no longer in cahoots.

“UBS got this incredible gift — the deal of the century,” said one adviser to banks. “Now the government is coming under pressure from the Swiss public to make it look like it wasn’t such a great deal. But ultimately, you get the regulation you can pay for and for UBS that means they will inevitably get higher capital requirements.”

One point of agreement between the two camps is that the enlarged UBS is not overly dominant in its domestic market.

It controls about 20 per cent of domestic deposits, 31 per cent of loans and its total assets are roughly double Switzerland’s gross domestic product. This has led to claims by opposition politicians and rival bankers that it has too much influence on pricing in the market, which ultimately harms customers.

But Switzerland has more than 235 local banks, with up to a third of the market controlled by government-owned cantonal banks, which Ermotti has argued renders “talk about a lack of competition . . . a joke”.

Finma last month decided not to impose any restrictions on UBS’s domestic business after receiving a report from Switzerland’s antitrust watchdog.

However, a separate regulator that monitors prices said it would scrutinise the fees that UBS charged after the report from the Competition Commission highlighted that the lender still dominated parts of the domestic market.

UBS, Finma, SNB and the finance ministry declined to comment.

People involved in closed-door discussions between the two sides said that although talks had been “robust” and “intensive”, there was more agreement than with US banks that have lobbied heavily against the imposition of Basel III capital rules over the past year.

Others added that it was natural for competing views to emerge as part of a healthy political debate in Switzerland.

The banker who worked on the Credit Suisse takeover added: “There is a lot of posturing going on but in the end, sense will prevail. Eventually they will meet in the middle.”



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