Zurich The longtime president of the major Swiss bank UBS, Axel Weber, warns against underestimating the risks in banking with ultra-rich customers. “We have to stop describing asset management as a risk-free business,” Weber told journalists in Zurich on Thursday. “The idea that there is risk only in investment banking is a fallacy.”
This is a lesson from the recent crises at Credit Suisse, as well as the US money houses Silicon Valley Bank and First Republic, according to Weber, who now works, among other things, as an external advisor to the German asset manager Flossbach von Storch. “There are also risks in wealth management and asset management that can materialize in certain market situations.” Banks describe their business with professional investors, such as pension funds, as asset management.
From Weber’s point of view, the three bankrupt financial institutions had two things in common before their collapse: They suffered from a loss of trust and at the same time were focused on so-called ultra-rich customers, who are referred to in the industry as “Ultra High Net-Worth Individuals” (UNHWI).
This customer group has liquid assets in the high two-digit or three-digit million range. “Wealthy customers move much faster when they lose trust,” says Weber. In all three cases, multimillionaires and billionaires contributed to the “acceleration” of the banking crisis by withdrawing funds on a large scale.
Weber’s warning may also appeal to his ex-employer. Because UBS is also focusing on business with wealthy clients – the institute wants to become number two worldwide in this area through the state-ordered emergency merger with Credit Suisse. According to its own estimates, UBS should manage $3.4 trillion after the merger with its former main rival in global wealth management.
Weber had the merger with Credit Suisse played through several times
The plans of CEO Sergio Ermotti, who was brought back to the top of UBS at the end of March, envisage, among other things, a sharp reduction in Credit Suisse investment banking. In the future, a maximum of 25 percent of the bank capital of the merged Swiss megabank will be made available for investment banking. With the rest, UBS wants to expand its core business, wealth management.
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Ermotti had already taken a similar approach at UBS when he and President Weber had to reorganize the bank after the financial crisis and a rescue by the Swiss government. But Weber warns: “Simply closing down investment banking and thinking that the job is done, that would have jumped too quickly.”
However, Weber believes that the reforms initiated under him and Ermotti mean that UBS is well prepared to handle the takeover of Credit Suisse. A takeover scenario was played out again and again by the UBS supervisors. “We practiced the topic and practiced it,” Weber continued. For years, a merger with Credit Suisse was looked at at the annual strategy meetings of the board of directors. “Being prepared is a duty of every board of directors.”
From Weber’s point of view, this also applies to supervisors. The ex-UBS president and former head of the Bundesbank has long been calling for a European banking union, i.e. uniform rules for supervision in the currency area. But he criticizes that this is not progressing. “We haven’t made any major improvements to our crisis tools over the past ten years.”
The collapse of Credit Suisse and the controversial rescue operation by the Swiss federal government have shown how important it is not to wait until the crisis is over to think about possible tools to combat the crisis.
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