‘Too big to fail’ Swiss banks should exit trading says Ethos president

Arguing that they are still “too big to fail,” Dominique Biedermann, President of the Swiss pension fund-backed proxy firm Ethos, believes banking giants Credit Suisse and UBS should divest their trading operations and be obliged to hold more capital in reserve.

Biedermann told Responsible Investor that while he was not necessarily speaking for all of the 200 pension funds and foundations that back Ethos, “the fact is that most of our members traditionally support our view.”

Biedermann was elected as Ethos’ president last June. His successor as Director of the Swiss proxy firm is Vincent Kaufmann.

His remarks had earlier appeared in an interview with “Switzerland on Sunday,” in which Biedermann noted that the banks’ combined balance sheets were now twice the GDP of Switzerland. “That’s a huge risk that we (Swiss taxpayers) have to protect ourselves from,” he said.

According to Biedermann, one way to reduce that risk would be for the two banks to shed their trading desks. “That said, we are not opposed to both banks keeping the part that is focused on corporate mergers and acquisitions. This does not require much base capital.” During the global financial crisis of 2008, UBS received a Swiss government bailout worth almost $60bn (€54.3bn). Credit Suisse avoided taking government aid by raising billions of francs in fresh capital from investors, including sovereign wealth funds.The other way to reduce the risk to Swiss taxpayers was to require Credit Suisse and UBS to hold more capital in reserve, said Biedermann. The Swiss government has recently said a leverage ratio of 5% – that is CHF5 for every CHF100 worth of engagements – would take effect. But Biedermann believes a ratio of 10% is more appropriate.

Asked to comment on the view that the two banks are too big to fail, UBS said that since the financial crisis, this was no longer necessarily the case. “In the last four years we have halved our risk-weighted assets and shrunk our balance sheet. Compared with other global banks we have a strong capital base and a successful business model,” said UBS.

Credit Suisse said the Swiss government’s leverage ratio, combined with its new and less risky business model, meant that “the too big to fail problem” was being dealt with.

In the interview, Biedermann also said that the Minder initiative against executive pay had been successful. “The biggest excesses, like Brady Dougan (ex-Credit Suisse CEO) getting CHF90m, are over. It seems that the maximum level is now around CHF15m – though that is still too much.”

Biedermann also said the “dark age” of CEOs serving simultaneously as chairs at Swiss firms was over. Finally, the Ethos president said that in the run-up to the Paris climate summit in December, the proxy firm was urging Swiss companies to publicise their carbon emissions.