Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
When Karin Keller-Sutter was appointed from Switzerland’s seven-member federal council to the country’s rotating one-year presidency, she was described in the local press as a “power-hungry hardliner”. She has not disappointed.
Close observers of the Swiss financial scene will remember Keller-Sutter from her pivotal role as finance minister in 2023, when she led the government’s move to force a failing Credit Suisse into the arms of arch-rival UBS. But critics say the global profile she got from orchestrating that bailout gave her a taste for the limelight — hardly the norm in consensus-driven Switzerland.
Exhibit A is her summertime face-off against Donald Trump, whose government is angry about a 39 per cent trade deficit with Switzerland: a disastrous meeting that was meant to yield lower tariffs actually produced a tariff hike. “It’s her own fault,” says one Swiss business leader. “All she had to do was turn up with a gold Rolex and charm him. But she refused to be pragmatic.” (On Friday, the US announced the tariff would come down from 39 to 15 per cent, after a business delegation charmed him instead.)
Exhibit B is her pitched battle with UBS, which thinks she reneged on the spirit of its Credit Suisse rescue with plans for radically higher capital requirements. In dismay, senior figures at UBS have in recent weeks been making ever more thinly veiled threats to relocate to the US.
Among Zurich financiers, such a move is deemed unlikely, given the complexities involved and the value that many of UBS’s Asian clients attach to the bank being Swiss rather than American. But the Trump administration is said to be ready to roll out a welcoming red carpet. A personal animus between Keller-Sutter and UBS chief executive Sergio Ermotti compounds the issue.
UBS deserves some sympathy. Swiss authorities have already applied the last elements of the so-called Basel III rule book on bank capital (which the US, UK and EU have dragged their heels on) — increasing the risk-weighted asset tally against which its capital requirement is calculated by about 14 per cent.
Next they want to redefine what counts as capital — wiping out nearly $11bn by discounting the value of software and deferred tax assets; then imposing $24bn worth of extra capital demands to duplicate capital held within foreign subsidiaries. Some of these measures are bringing the Swiss system into line with other jurisdictions, but most go further.
Some content could not load. Check your internet connection or browser settings.
All this at a time when the US (and potentially other countries) is preparing to radically deregulate. UBS reckons it will be held to a 19 per cent core equity tier one capital ratio, versus an 11.6 per cent average for its peer group (before projecting any possible reductions in that average from deregulatory moves). No wonder the stock has underperformed badly, despite decent profit performance, up less than 10 per cent over the past year, compared with between 25 and 70 per cent for its US and UK peers.
Keller-Sutter can be forgiven for being cautious. UBS hardly has a clean record — from its own 2008 bailout to scandals over rogue trading, client tax evasion and Libor interest rate manipulation. And then there is the scale of the bank’s balance sheet — more than half as big again as the country’s economy. As one financial official puts it: “We have to make sure UBS is not a liability for Swiss taxpayers.”
But of course UBS is a huge asset for Switzerland, too — in terms of the financial ecosystem it sustains; the people it employs (35,000 in its home market); the taxes it pays directly and indirectly; and its role financing the country.
The bank and its boss could probably do themselves a favour by offering Keller-Sutter some carrots — perhaps a jobs pledge, a retreat from nose-thumbing pay awards for Ermotti, or an offer to share the potential cost of compensating holders of Additional Tier 1 (AT1) bonds of Credit Suisse who won a recent court ruling over their losses. Any or all of the above might just encourage Keller-Sutter — or at least the parliamentarians who are debating her planned measures — to soften their approach.
A Friday letter from the Swiss parliament’s upper house economics committee to Keller-Sutter and the rest of her federal council — saying it was “crucial” that the new capital rules “do not exceed” those of international financial centres — will have given UBS some cause for hope. For the country’s biggest bank to be globally uncompetitive is in no one’s best interest.
patrick.jenkins@ft.com