Is there a future for Swiss finance?

I recently held a speech at the UBS International Center of Economics in Society on the future of Swiss finance and what do we need to do to enable Swiss banks to maintain their global success in the future. I have no doubt that Switzerland can remain successful only if we are not content with just being good. Digitalization will be an important driver that will shape the future.

Feel free to share your thoughts.

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There was no visionary in Switzerland 150 years ago saying: “One day, Switzerland will be one of the most important financial centers in the world!”

But that is precisely what the Swiss financial center is today: important.

Why? Because time and again there were people in our country who saw new opportunities and seized them. Over the years, they have made our financial center what it is today: a model of success.

Indeed, it is a model of success that many countries envy.

And people who envy success often try to imitate it. Other parts of this world want a piece of the pie, too.

Look at Singapore, Hong Kong, China, London, Frankfurt and Paris. Then there’s New York, and also Miami.

That’s a lot of competition. In my opinion, this means that our current success in Switzerland will not last unless we do something about the future.

But before I answer the question posed by this conference “Is there a future for Swiss finance?”, let me first look back to the past.

Twenty years ago, in 1998, UBS was formed by a merger between the Union Bank of Switzerland and the Swiss Bank Corporation. At around the same time, Credit Suisse took over Schweizerische Volksbank.

 Then came two very different phases.

First, there were ten years in which the financial industry was extremely innovative, perhaps too innovative.

Thanks to years of success, the banks had cheap access to financing and capital. Meanwhile, the regulatory and political ecosystem facilitated the emergence of many new innovative products. This was an explosive cocktail.

From the end of 2007, it was clear that these innovations and the political objectives were not sustainable or reliable, and that risks had not been correctly perceived.

The result was a destabilization of the system.

Many banks suffered major losses, including UBS. Stabilizing measures were needed worldwide.

Attempts to prevent new crises made the regulatory pendulum swing sharply in the opposite direction. But even that trend seems to be weakening now.

So, we had a bubble from the mid-1990s to 2007, followed by a decade marked by intensive regulation. What have the past 20 years taught us? There must be a happy balance between innovation and regulation.

I am convinced that we will now see another ten years of massive change, this time driven primarily by technology.

The question will be: “How can we be innovative and sustainable at the same time?” 

With respect to the Swiss financial center, the question should be: “What do we need to do to enable Swiss banks to maintain their global success in the future?”

I believe that this question can be answered quickly: we will be successful if we have a strong, credible regulatory system that offers security.

By the way, being strong and credible does not just mean more regulations!

Above all, we need the right amount of regulations in the right places. Regulations that leave room for innovation and that do not go beyond the regulations governing our international competitors.

Nonetheless, we must ask ourselves the following question in particular: “What will the world look like in ten years?”

New technologies always bring both new opportunities and new risks.

We could talk for hours about the risks for the banking industry associated with digitalization, big data, cyber-crime, and other issues. Or about the negative impact that robotization, artificial intelligence or machine learning could have on society.

 In my opinion, digitalization is above all an opportunity!

Of course, there are both social and regulatory challenges.

But digitalization also helps us to deal with these challenges. It gives our business the opportunity to become even better.

And it gives our employees the opportunity to do more interesting tasks.

In fact, as UBS sees it, the digital future has long since begun.

Every year, we invest more than 10% of our revenue in technology and systems to become more efficient, but also to make our offering more attractive for our clients.

10% – that’s more than 3 billion francs per year!

Here’s an example of what the term “digital” means at UBS in Switzerland.

• It is now possible to open an account digitally, without even stepping into a bank branch.
• Around half of our clients use e-banking and mobile banking. Of these clients, 13% already use their smartphone as an interface with us.
• Online clients are attractive clients. We generate 17% more business with them than with clients in traditional channels.
• There are already 300 “robots” working at UBS to optimize the workflow. There will be 700 by the end of 2018.

 As you can see, the rise of digitalization is an opportunity for UBS and not primarily a risk. The same holds true to a certain extent for our country.

According to the latest WEF ranking, we are the world’s number two in terms of technological readiness.

But there is also a downside. In the World Bank’s ranking for the category “Ease of doing business,” we slipped to the 33rd position, behind Mauritius and Malaysia – to name just two countries ahead of us that begin with “M”.

With regard to framework conditions for digital business, many countries in Northern Europe and Asia are beating us.

So we’ve still got potential there.

To my mind, this raises the question of whether our political structures are suited to the greater speed of this technological world.

For example, I find it amazing to see the extent to which our parliament is struggling with the construction of networks for the future, that is, digital networks.

I am thinking, for example, of the decision by the Council of States to reject the new framework conditions for the 5G network.

We need to create optimum framework conditions in Switzerland so that we can capture opportunities going forward.

The speed of change has picked up rapidly, so we can’t afford to debate the perfect solution for years on end, as we used to do. 

We need to invest in the digital structures of the future here and now, for example, 5G, Swiss Cloud, and much more!

I have no doubt that Switzerland can remain successful only if we are not content with just being good.

Instead, we need to strive to be permanently better.

Back to the financial center. Yes, despite crises and the changed international environment, we still have a strong financial center. Which is good news! Because Swiss industry would not be what it is without a strong financial center.

Swiss industry serves markets worldwide, which means that it needs the partnership of globally active banks.

In this respect, the two big banks are crucial. If industry only had specialized private, cantonal and regional banks to rely on, it would not be fully competitive.

This means that the big banks represent an opportunity for Switzerland. Unfortunately, there are still too many critics who do not understand this well enough. When they think of banks, they think that big automatically means bad and dangerous.

Let me say clearly that I’m not just concerned about the big banks and their image, even though this has considerably improved. I’m also concerned about Switzerland!

For example, UBS is the country’s third-largest private employer. Yet half of our employees do not work in the Swiss business, but in Group functions, which could also be located in London or New York.

All of Switzerland benefits from this. Many top managers at banks and in Swiss industry earned their spurs at the big banks.

We are part of Switzerland; we are a useful part of Switzerland.

Let’s look at the positives. Switzerland is clearly still able to have two global, systemically relevant, strong banks. And an internationally competitive financial center.

In spite of new, strong international competition!

But, at the same time, let’s not close our eyes to the new realities. Margins are sinking, just as in all other branches exposed to global competition.

Today many banks – in Switzerland and elsewhere – fail to earn their capital costs in structural terms or even make a loss.

This mix of competition from new financial centers, plus the strong franc and negative interest rates, along with political pressure from abroad, and finally also the high regulatory costs, have left a profound mark on Switzerland: the number of banks has dropped by 20% in the last ten years.

 How can we remain competitive and be best-in-class?

First, as I said before, through a smart regulatory framework, with requirements for Switzerland that are no stricter than those of other financial centers. A number of other players have also realized the importance of this. But some have yet to do so.

All the same, I think that we will continue to see consolidation. Closures, mergers and takeovers are one possible route.

But we could approach this consolidation in another way – and that brings me to my second point. We should work closer together within the industry.

When margins were high, banks could afford to do most things or even everything on their own in the past.

I am convinced that this will not work in the future – not in Switzerland or internationally.

The battle against our competitors cannot be won solely via the interface with clients. The greatest costs for banks are hidden in the back offices. We need to streamline and automate processes there in order to capture the benefits of scale.

Cooperation on these processes will be crucial to victory, given the billions that the technology will cost.

 I now come to my third point, the general framework conditions. At the start, I said that we have a lot of competitors – both old and new.

We need to finally realize in Switzerland that we are ultimately on our own as a financial center.

We have no friends, either among our European neighbors or further afield.

If you think anything else, you’re greatly deluded.

Many different countries currently deal with regulations in ways that create advantages for their own financial center.

We see this time and again.

• For example, the United States is the only major country that has not implemented the OECD standards on the exchange of bank information – and that’s not about to change.
• Free market access in Europe is not always possible for Swiss banks.
• And in China, foreigners cannot own more than 51% of a bank. Just to quote a few examples.

Switzerland is on its own. If we don’t look out for ourselves, no one else will.

Should we complain about that? No! But we should exert influence in areas where we are able to do so.

I’ve already talked enough about regulations. And about better cooperation among Swiss banks.

What else can we influence? - Education and training, for example.

Our system of education and training has been a firm foundation for our industrial and financial center for decades. Our dual education system is admired worldwide – and quite rightly, too!

It’s so flexible that a bank apprentice can become the CEO of a big bank – like me!

We need to boost education and training at all levels and invest in them. And we need to make sure that our educational system always matches needs and adapts accordingly.

Is UBS – or are we – doing enough to create the optimum framework conditions? We recruit highly educated staff.

But for them to remain competitive, we need to invest a great deal in further training for them, and this is one of our aims. Last year, for example, there were more than 765,000 training activities at UBS!

Ladies and gentlemen:

In the Swiss financial center, we are still benefiting from expertise that we have accumulated over the past 150 years.

We have a long tradition, while others are just getting started. Many of our clients also appreciate this.

So we profit from our past. And at the same time, we have always been agile enough to adapt to the requirements of the present.

But if the pace of change continues to increase, we will need to adjust our agility and become faster – and ultimately more courageous, too.

So if Swiss finance wants to have a future, I believe that we need to improve in the three above-mentioned areas.

1. We need smarter regulations. There will be no reward for the model pupil Switzerland, if it restricts its financial industry with excessive regulations. As I said, we face international competition in this area.
2. We can and must cooperate in the financial center in areas where there are no possibilities for differentiation in order to boost efficiency. This will allow us to focus even more on the quality of our advice and our services.
3. We need to be fully digitalized, both on stage and behind the scenes. This means that we need suitably qualified specialists from Switzerland for Switzerland – and, if that is not sufficient, access to specialists from other countries and the best technological infrastructure.

Smarter regulations, closer integration, more rapid digitalization.

These are the logical next steps so that we can continue to write the success story of the Swiss financial center.

I see major opportunities for our bank in the future. And I see a successful future for the Swiss financial center – provided that we don’t rest on our laurels.