UBS bosses will have to give the nation a good explanation as to why Credit Suisse Switzerland needs to be integrated, Stephan Zimmermann tells finews.asia. He also warns about rampant anti-bank sentiment.

As recently as April this year Stephan Zimmermann worked for UBS and its predecessor Swiss Bank Corporation (SBC). He now serves as a member of the board of directors of VP Bank in Liechtenstein and is married to former Federal Councilor Ruth Metzler-Arnold. Having held numerous management functions and belonged to the extended executive board, as well as serving as head of the German business and operational head (COO) of UBS Asset Management, he knows the organization like no one else.

Zimmermann also helped shape the company's transformation, starting with the merger between Union Bank of Switzerland (UBS) and SBC in 1998. Although he's not involved in the takeover of Credit Suisse, he had much to say about the current merger.

What distinguishes the UBS Credit Suisse merger from the one twenty-five years ago is that «nobody wanted this takeover, not even UBS,» Zimmermann told finews.asia in an interview.

Two Bank Bosses

Twenty-five years ago people were behind the UBS/SBC merger, and that started with the respective heads of the companies. Mathis Cabiallavetta, head of SBA, and Marcel Ospel as CEO of SBC understood each other well and went on long walks in the canton of Grisons. The two agreed to go through with the merger, going against the initial resistance of the board members. This fundamentally friendly approach also made it possible to study the opportunities and risks of the transaction in detail in advance.

«By comparison, the takeover of Credit Suisse by UBS was a shot-gun decision made under emergency law,» Zimmermann added. Uncertainty remains high on both sides of the transaction. At UBS, employees are eager to know what the future business plan looks like and what it means for them, the former manager reports.

Two-Story House

As far as the two organizations in Switzerland are concerned, the uncertainty is likely to continue until at least the end of August. That's how much time UBS's leadership under chief executive Sergio Ermotti has carved out to decide on what to do with Credit Suisse’s Swiss business.

Ermotti's baseline scenario is the full integration of the Swiss division of the acquired bank, which makes sense to Zimmermann. «For me, it's clear that Credit Suisse Switzerland cannot simply be removed from the integration which would be like removing the second floor of a house,» he said. Furthermore, Swiss bank clients have always had a wide choice for their banking transactions. There are enough offers in the local retail and private banking sector, according to Zimmermann.

Too Complex, Too Expensive

At most, one could consider whether there's a need for another player in the corporate client business, and what its connection to UBS would look like. Yet «it would be too complex to build and also too expensive to implement,» but such a variant should nevertheless at least be examined, he concludes.

The bank will have to justify to all stakeholders certain decisions in a factually sound way. «If you conclude that this integrated big bank should continue to exist in Switzerland, then you have to show in detail and rationally why it's the right way forward and why other options aren’t feasible,» he said.

Serious Task

He trusts this task is being taken seriously at UBS. «Seldom have I sensed so clearly among those responsible, an awareness of the great political responsibility they hold,» Zimmermann said. The current mood among citizens shows that parliamentary initiatives looking to massively tighten banking legislation for the combined bank are quite possible, he said.

Potentially fueling this atmosphere is an industry that was able to dodge certain legislative proposals while losing on some of them are developments that signal caution from a banking perspective, he said.  «In general, I would not overestimate the mood in favor of banks in Switzerland,» he added.

Uncontrolled Giant

He hopes the parliamentary investigative commission (PUK) formed in June will provide differentiated findings that will lead to fact-based improvements. In his opinion, the worry about an oversized bank is shortsighted. «If you imagine the regulatory requirements that a large bank operating internationally has to meet, and how financial products have to be documented, then one can hardly call it an uncontrolled giant,» he said. 

However, the high level of regulation means that an internationally active bank must be large enough to keep its unit costs competitive. Anyone wanting to handle such a business needs access to sufficient capital and a corresponding balance sheet.

Learning from Mistakes

«Switzerland must seriously consider whether it wants to continue to have a significant player in banking to carry out international business,» he said. Swiss banks have been around for a long time and «the financial center has great importance worldwide and is an essential component of our economic competence. We should hold on to that and learn from our mistakes.»