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Should Switzerland also introduce such as law?

I do believe that we should consider enacting such a law and there have been efforts to that effect from political actors. If a company from a small country such as Switzerland buys a firm abroad it isn’t the same as if a company from a huge country such as China or the U.S. buys a Swiss firm.

Why?

Because of the political power of these countries. We’ve had plenty of experience with this in dealing with the U.S.

Would such a law have to be put in connection with the issue of systemic importance?

In manufacturing, there’s no such thing as systemic importance, unlike with banks.

«When push comes to shove, the distinction won't hold»

Our manufacturing industry relies on banks that play a role in international finance. It is not just wealth management, but also loans that are granted to companies in Switzerland. This is a service that needs to be maintained.

Would it work to say that if a bank is taken over, the Swiss business has to be split off?

Theoretically yes, but you need to keep in mind that the Swiss business is also an international business. You can’t distinguish so clearly, at least not in wealth management. Both banks already have such a legal structure – but be assured, this is a mirage only.

If for instance UBS had a problem with its investment bank in the U.S. and was about to fold that unit, the U.S. wouldn’t hesitate to take regress to the group. When push comes to shove, the distinction won’t hold.

If Switzerland were to legislate on foreign takeovers, this would be equal to a restriction of the free market economy…

But only from our point of view. We are one of the few countries that upholds this principle strictly. Most countries don’t and national interests are always a priority. The Chinese for instance act primarily in the national interest. If a Chinese bank buys a Swiss bank, it’s all about politics.

Wouldn’t a law that bans foreign takeovers of companies weigh heavily on their stock price?

If the government decides to introduce such a law, it would hardly be felt because similar rules apply abroad. If it was forced to resort to an urgent decree however, then of course the stock would take a dive. But that would not be such a tragedy in the short term, because after all, you have to look at the company’s performance as well: and the problem is, banks aren’t profitable enough.

How’s that?

I always look at the cost-income-ratio of the banks, the relationship between their costs and their earnings. It is devastating! The ratio has mostly been at levels of more than 80 percent for more than a decade. Previously, big banks often had a ratio of below 50 percent! That’s why it isn’t attractive to buy the shares of a bank.

«The times when banks made heaps of money are over»

They won’t recover as long as profitability doesn’t improve. But the environment doesn’t help of course, with negative interest rates as an example. Then there’s the stream of legal disputes. Don’t think that the French case will be the last. There’s always going to be another one.

So your expectations about the earnings of the two banks are rather moderate at the moment?

There’s always the chance of a good quarter or even year – I’m looking at the developments in the long run. The times when banks made heaps of money are over.

What would they have to do in your opinion?

They need to change their structures. It begins with the bonus payments – some of them are simply obscene. It is not just the board and executive payments that matter. There are literally thousands of so-called managing directors who earn loads of money. There’s been an inflation of managers that don’t manage anybody. Directors used to have hundreds of people under their guidance.

The billions spent on those bonuses could be cut. Banks should not pay well in good times, they should pay well when the going gets tough.

Robert U. Vogler was a spokesman of Union Bank of Switzerland (which became UBS), later the head of historical research and, until 2009 senior political analyst at the public policy unit of UBS. Today, Vogler is an independent historian. He occasionally publishes articles on finews.com.