I am sure you have seen the catastrophic financial results of Swiss bank UBS released this week. I have been saying for quite some time that UBS is too big to fail, but also too big to bail for tiny Switzerland. In my view, the recent financial results demonstrate that, although this situation has stabilised somewhat, UBS still represents a grave risk to the Swiss economy. I am not alone in this. Manuel Ammann, a banking expert of noted German-language university St. Gallen has shared similar views with Swiss daily Tagesanzeiger. My translation is below.
Today’s announced strategy by UBS, to continue investment banking and to remain active as a universal bank, is economically risky, according to banking expert Manuel Ammann. “UBS is really too big for Switzerland,” he said today in “Rundschau” on Swiss television. In order to stabilize the banking system, we need a lot of small banks which carry much less systemic risk.
The professor at the University of St. Gallen is confident that the world will still experience more financial crises – among other things, because in recent months “problematic incentives” have been created. Through the intervention of the state, the wrong signals have been sent to the banks – if one fails, in an emergency, the state will come to the rescue. At present, bankers still feel burned by the current experience. But a few years from now, when all is well again, the same risks will be taken.
The worst of the current financial crisis is behind us. “There is less talk about the collapse of the international financial system.” Nevertheless, more negative news from the financial sector will likely continue for now.
Ammann is essentially making the same argument that others like Willem Buiter make i.e. that large banks pose too much of a systemic risk and must be broken up as a policy remedy to prevent further crises.
There is a video of Amman at the link below, which should be interesting if you speak German (especially Switzerduitsch).
Source Die UBS ist zu gross für die Schweiz – Tagesanzeiger
Originally published at Credit Writedowns and reproduced here with the author’s permission.
One Response to “UBS is too big for Switzerland”
If it were only about headcount reductions, Gruebel’s 11% start would be a relief. This is based on a forward looking outlook that expects some reasonable recovery into 2010 much like those TREASURY STRESS TESTS that are looking more like FUDGE and PUDDING ( for the participating banks that is – good for them – bad for the taxpayer). So, it is realistic to expect this is only a start with hope springing eteral – or at least – hope of a capital market recovery which the UBS business model depends upon by 2010.Unfortunately, it is more compliated. Clawing back lost market share in any higher margin business is difficult. In the wealth management area globally, for UBS to move in the right direction will take years not, months.A combination of increased regulation on a global scale which goes to the heart of the Swiss bankig model ( not merely UBS) and, the still outstanding resolution of will they or won’t they need additional capital ( in the event of another major turn down in capital markets), makes UBS a) questionably D.O.A. in the U.S.A. ( post the U.S. exerting both DOJ and IRS control over their business model there – does any right thinking family office or high net worth individual want to seriously consider UBS as a business partner in the U.S. – that is NOT a part of TARP I, PPIP or whatever other quasi government guaranteed backstop ?); b) battling with the OECD to maintain its STATUS QUO to stop the SIGNIFICANT 12 month Net New Money outflow ( a sorry task); c) leaving Ossi ( Grubel) as capitan of broken ship in extremely stormy waters.UBS is a classic case of too big to fail. A return to SBG is the most likely probability which we can all hope for actually. For those that remember this business model – its’ basis was sound, conservative private banking ( again – the rules have changed on this point for good as well – on the definitions of tax evation and tax fraud) but at a much smaller level than what we have today year 2009. In the interim the risks clearly remain with the Central bank and the taxpayer. Expect significantly more unemployment, lower economic growth and, more pain in the sector altogether. WHY ELSE IS THE SNB invovled in pushing their QE ??They understand the risks – at least Philipp H…does …very, very…well…