Nikolaus Senn, the 69-year-old chairman of Union Bank of Switzerland, unwinding at his holiday home in Florida, gets a message from the office in Zurich. Rainer Gut, chairman of rival group CS Holding, wants to have a talk.
Senn is suddenly wrenched, from the relaxation of Palm Beach, back to the hot-house he left in Zurich. It's two weeks before his bank's annual general meeting (AGM) - the last he will see as chairman. It promises to be a cliff-hanger. According to the rumours that abound in the Swiss-German city Martin Ebner, maverick banker whose fund BK Vision is a major UBS shareholder, is close to amassing enough votes to block the appointment of Senn's designated successor, outgoing chief executive Robert Studer.
There are also rumours that Gut has joined forces with a group of institutional shareholders in UBS - Winterthur Insurance, Swiss Re-insurance, Roche Holding - either to support Ebner, or to push UBS in some other uncomfortable direction. Senn is curious to know what Gut has to say.
"I called to set your mind at rest," says Gut. "There's no truth in these rumours that we're planning to support BK Vision at your AGM."
"Glad to hear it," says Senn thinking, is this all? Gut isn't a man who calls you just to tell you what he's not going to do.
"There is one other thing," says Gut.
"What's that?"
According to both sides, Gut then suggests it might be time to discuss a merger between the two banks.
But how he broaches the subject, and how it is received by Senn, later becomes a matter of fierce controversy in Zurich. Is this a veiled takeover threat, or a friendly offer to share some thoughts on a question that is "bound to be raised sooner or later" as a defensive CS press release afterwards explains.
Gut's conversation with Senn is friendly - they've known each other for years. Senn says he'll consult his executive committee, due to meet in 10 days' time. Gut says he'll fax times and places where he can be reached over Easter. The date is April 1.
"This isn't an April Fool's joke is it?" asks Senn.
"No," says Gut. He's serious.
The fact is, Switzerland is over-banked. A McKinsey report three years ago suggested 25,000 banking jobs would have to go by the end of the century, and since then only 10,000 have been cut. There is revolution among the cantonal banks; smaller specialized or universal banks have been absorbed into bigger groups. But almost everyone accepts that the financial retail sector must be squeezed some more. The debate is about who takes the pain, and how fast.
All three big banks UBS, CS Holding and Basle-based Swiss Bank Corporation (SBC), began restructuring their domestic retail operations two years ago. But in a persistent recession, and a property slump that hasn't reached bottom, there is an argument for more radical surgery before the banks' solid profits and their fat capital base start to erode.
Gut, widely revered as Switzerland's foremost investment banker, is more ready than some to believe the draconian analysis of McKinsey, and more recently Coopers & Lybrand, which predicts 50% fewer jobs in Swiss finance by 2005.
Gut also has an eye on global investment banking, where his group, which includes CS First Boston and Credit Suisse Financial Products (CSFP), has some of the vital ingredients to make the big league, but somehow hasn't achieved the critical mass. And, as one rival puts it, he needs the "oxygen" of a new acquisition. Last year he tried to buy Commerzbank, the year before, Creditanstalt-Bankverein. Now he sees UBS as a target.
The two banks, UBS and CS Holding, "would together have a chance in the medium term of making the first league of the global finance industry", wrote Gut in a letter to UBS board members 10 days later. "Given the tendency of the industry to consolidate," he continued, "a union between two strong partners can lead to a quantum leap forward. Timely co-operation is preferable to a defensive merger." What he didn't say, but what was surely in his mind, was the estimated Swfr450 billion that UBS has in funds under management. Together, the banks would be managing about Swfr800 million, making them the second biggest fund manager outside the US, below only Japan's Kampo.
In hypothetical terms, Gut's proposal made some sense. But the 64-year-old banker, veteran of many boardroom battles and cross-cultural skirmishes, had either overlooked or chosen to ignore the psychological impact his suggestion might have on a bank that already felt under siege.
The Ebner factor
Martin Ebner and a group of like-minded investors have been stalking UBS for four years, criticizing lack-lustre profits, threatening to unseat board members, and recently unleashing a barrage of court-cases, frustrating board decisions and even accusing top UBS managers of criminal activity.
The battle began with Ebner's game of arbitrage between UBS's two classes of shares - the registered shares (nominal value Swfr20) and the bearer shares (nominal value Swfr100) which carry equal voting rights. (The registered shares cannot be held by foreigners, which in theory keeps the majority of votes in Swiss hands.) Ebner's fund BK Vision invested in the registered shares when their voting leverage was undervalued, and drove up the price. His strategic argument was that when UBS, like many other Swiss companies, finally unified its two classes of shares into registered shares, holders of the registered shares would enjoy a windfall profit.
Matters came to a head in November 1994 when UBS called an extraordinary general meeting to vote on the share unification. But it was proposing to unify the stock into bearer shares, not, as other Swiss companies had done, into registered shares. Ebner cried foul and attempted to get the move voted down. He lost, but only by a narrow margin of around 0.3%.
Recriminations followed. Ebner accused UBS of buying votes before the meeting. UBS accused Ebner of flouting the company's bye-laws by forming a concert party of investors. Ebner and his lawyer Peter Hafter launched five lawsuits related to the affair, one of which is a criminal action against Studer, then chief executive of UBS, for fraudulent business dealing. Another of Ebner's lawsuits has effectively blocked UBS from going ahead with the share unification.
Throughout 1995 the slanging match continued, with Ebner not disguising his distaste for Studer, the chairman-designate. In January this year Ebner said he was continuing to build his BZ group's stake in UBS shares, which then stood at about 10%, and that he might propose an alternative to Studer at the annual general meeting on April 16.
But in February it seemed the constellation of UBS shareholders was changing. Industrialist Stephan Schmidheiny, a member of one of Switzerland's richest dynasties, said he had bought a 5% packet of UBS registered shares from BK Vision for around Swfr250 million. There were reports that Winterthur Insurance, Zurich Insurance and Swiss Re-insurance had also bought similar blocks of up to 5% from Ebner's BK Vision. UBS bye-laws, after a 1990 amendment, allow major shareholders a maximum of 5% voting rights, whatever the size of their stake. UBS also refuses to count votes that come under another major shareholder's sphere of influence. For example, the 1.1 million (just under 5%) votes of watchmaker Rolex Holding were disqualified in a 1994 vote because Rolex was identified with BK Vision, since it owned 50% of BK Vision's capital.
With this influx of new, establishment shareholders it seemed Ebner's influence might be waning - until it became apparent that Ebner was replacing his registered shares with UBS bearer shares. A group of shareholders traditionally identified with him - Roche, right-wing politician and chemicals industrialist Christoph Blocher, auto importer Walter Frey, each owning UBS stakes of between 3% and 5%, were still in the frame. It was conceivable that Ebner, by persuading a few pension funds - also his clients - could swing enough negative votes to unseat chairman-designate Studer at the April meeting. That, at any rate, was the analysis circulating in the press, and possibly in the minds of UBS management. As April 16 drew closer, some calculations put the possible negative vote as high as 50%.
UBS knew it was under pressure. It launched an advertising campaign in the newspapers, urging pension fund managers to take their responsibilities seriously. It sent unprecedented questionnaires to shareholders asking them to declare whether they had been approached by Ebner to join a vote at the AGM or to co-ordinate their vote with other UBS shareholders. The letter even wanted details of any share repo agreements that might temporarily have assigned voting rights to others.
Escape route
With these signs of panic, Gut saw his chance: to offer UBS and its confused shareholders a third way out of the stalemate that had paralyzed the bank's decision-making for 18 months. They could vote for Ebner, they could vote for Studer, or they could be asked to digest the fact that CS Holding and UBS are in merger talks.
After Gut's call, Senn went through the motions of considering his proposal. In Zurich, incoming UBS chief executive Mathis Cabiallavetta headed a small task force working over Easter, reviewing data on market share, cost savings, economies of scale, overlap and synergy. "We told them, keep your emotions out of it and look at the facts," recalls Studer. "It would have been incorrect vis-à-vis our shareholders not to have done so." According to Senn, Gut had pressed for an agreement in principle before the annual general meeting. At this stage only a handful of people on each side knew of the proposal. In the light of what then happened, Gut might have wished the whole thing had been killed at birth.
By April 3, the Zurich bi-weekly Finanz und Wirtschaft was already hinting that something was in the air. It mused over the strategy of UBS shareholders Winterthur, Swiss Re and CS Holding, members of an existing global financial services group. Their individual appearance around UBS could be concealing a "Gut-style vision - a leap into the global elite of financial service-providers through a much heralded harnessing of UBS with CS Holding", wrote Anne-Marie Nega-Ledermann.
A reporter at the left-wing Tages-Anzeiger worked hard over Easter to firm up the story. By chance his paper already planned to carry an interview on April 9 with major UBS shareholder and board member Stephan Schmidheiny. But the interview was only a general one. The reporter, Hanspeter Bürgin, faxed Schmidheiny some more questions on April 4, which were specific to UBS. Will he vote for Studer? Has he heard about a possible alignment of Gut and Ebner? What does he think about a merger of two big banks? Schmidheiny replied and followed up with a phone call saying he wanted the interview to be as hard-hitting as possible.
Yes, he will vote for Studer. Yes, he has heard rumours about Gut and Ebner and "I must say I'm somewhat shocked. I find it difficult to imagine that the heads of these firms are using the money of their shareholders, their pensioners and their insurance clients to join a conspiracy against UBS, orchestrated by Martin Ebner, and the slanderous campaign against Robert Studer". Schmidheiny also advised CS Holding that instead of thinking about a merger with UBS "it should do its homework on the acquisitions it has already made in the last few years, such as Swiss Volksbank and the Neue Aargauer Bank".
By the evening of April 8, Bürgin had put together enough evidence from "three utterly reliable sources" to come out with a strong front-page story for the next day, the first edition after the Easter break. The story was headed: "CS wants control of UBS - Banker Rainer Gut delivers ultimatum - should merger be forced? - Schmidheiny fears conspiracy". Beside it was an editorial column headed: "An evil blackmail" accusing Gut, Ebner and their supporters of "an irresponsible destabilization of the biggest Swiss bank".
The story was dynamite. The initial reaction from CS and UBS was a flat "no comment". But the unions were already up in arms at the threat to thousands of jobs. At the Federal Cartel Commission the phones started ringing: journalists and bankers, mostly Japanese, wanted to know if such an enormous step is possible without the commission's say-so. It is, they were told, until July 1 when a new monopoly law comes into force.
Recriminations
Inside the two big banks a witch-hunt began, or at least the pretence of one. Who was the source of the leak? Gut's fury - the first time he spoke about it publicly two weeks later - suggests there was no deliberate leak on the CS side. "Because it was publicized earlier than intended," said Gut on April 22, "[it] needlessly caused the financial world to hold its breath."
Only a handful of people at UBS knew about the proposal - Senn, Studer, Cabiallavetta, a team of experts, and, in preparation for their April 11 meeting, probably all members of the executive board. The full UBS board includes Schmidheiny, who we know spoke to Tages-Anzeiger, and Andreas Reinhart, a former shareholder in Ebner's BZ Bank, who was a candidate for re-election to the board at the AGM. But, from bitter experience, some who have tussled with him say there was no need to look any further than Senn himself.
"We've had the experience of leakages from UBS too," says Kurt Schiltknecht, chief executive of BZ Trust, part of Ebner's group. Schiltknecht cites two occasions when the substance of private discussions between Senn and Ebner were conveniently leaked a couple of days later. The first was two years ago when Senn and Ebner discussed the introduction of a single UBS share; the second after discussions on the relationship between BK Vision and UBS. "Two days later UBS made a press conference," says Schiltknecht. "This teaches you something."
CS pointed the blame clearly at the UBS camp. A CS statement on April 9 said the Tages-Anzeiger article was "based on a one-sided and sensationalized leaked report of a telephone conversation between the respective chairmen of CS Holding and UBS". But CS continued to believe that the question of a merger should be debated, the statement added.
Undaunted, Gut wrote a letter to UBS board members outlining his view of the merger: "Combined earnings could rise from the present Swfr3 billion to Swfr4.5 billion or Swfr5 billion and even more," he said. In the short term there could be a cost saving of Swfr2 billion. This could increase shareholder value by Swfr20 billion, with a yield of 13% to 14%, Gut argued, not to mention the further strategic opportunities. "We believe we have a duty to our shareholders to pursue this project. Now it has become public we must proceed more carefully." Gut referred to a "new wind" blowing through the banking scene. "This new wind - some people call it a storm - is unavoidable. We must unleash it, rather than being caught by it," he concluded. The letter was leaked to the Neue Zürcher Zeitung.
But it was already clear which way the wind was blowing. By leaking news of the proposal to the press UBS was able to use the new threat as a rallying cry. "Evil forces are trying to destabilize the biggest Swiss bank, in fact the entire Swiss banking system," UBS could argue. "You must vote for what is traditional and good: Mr Studer, who has kept the bank on an even keel for eight solid years."
UBS board member Reinhart in an April 10 interview with Finanz und Wirtschaft gave the orthodox view: "We need shareholders who stand fully behind the present UBS [management] and think constructively with them...We don't need any American raider-mentality to bring Switzerland forward, but positive, constructive action."
The UBS board's executive committee spent two hours on April 11 deliberating the CS Holding proposal, before rejecting it out of hand. A UBS statement claimed that the group was significantly ahead of CS Holding in earnings per share, earnings per employee and capital resources. The few possible synergies in some fields would by no means compensate for the many negative aspects of a merger between UBS and CS Holding.
A Credit Suisse statement accepted the decision but the bank said it still felt there was "potential for the two organizations, merged together, to take a strategic leap in the rapidly changing financial services world". It could not understand how such a long-term vision could be "perceived as an attempt to influence UBS's current situation".
But UBS's current situation was its major concern. It had fought off this real or imagined attack from CS Holding, but would it win the vote in five days' time?
It was a battle which had been taken to the media, and would now be fought in the media. But behind the scenes UBS was also canvassing for as much shareholder support as it could get. There was relief when the Co-op Pension Fund aligned itself with the UBS board. Although it represents only 1.5% of the votes, the Co-op is identified with the trade union movement. The panic about the job losses a merger would cause had brought the Co-op into line. CS Holding also confirmed, in the face of rumours to the contrary, that it would be casting its proxy votes in favour of the UBS board, as it was legally obliged to do - unless depositors of shares with a custodian instruct otherwise, the custodian must vote in line with management at a company's AGM.
The weekend before the AGM, Senn continued to use the media. In an interview on local radio, he accused Credit Suisse of leaking the story. And in a Sunday tabloid, he rather flippantly suggested that Swiss Bank Corporation would be a more compatible partner for UBS. Gut kept silent. But his former colleague Hans-Jörg Rudloff gave a full-page interview to Finanz und Wirtschaft. Rudloff, a former CS board member and vice-chairman designate of the newly merged Swiss pharmaceutical giant Novartis, said it would have been wise for UBS to consider a merger proposal carefully instead of rejecting it in knee-jerk fashion after a few days. But these things could not be done in public or under time pressure, Rudloff said, adding that a merger between a big Swiss bank and an insurance company might be more logical.
On Monday, the day before the AGM, Rolex got a call from the UBS legal department and learned that, although it had sold out of BK Vision, its voting rights were still the subject of a legal action - accordingly its vote would be treated the same as last time, as part of BK Vision's maximum 5%. Although Senn had said he was confident of the vote the next day, UBS was clutching at every advantage it had.
Tuesday, April 16
More than 6,000 UBS shareholders are crowding into the giant ice-hockey stadium at Oerlikon, a few kilometres outside Zurich. This is the canton's greatest spectator sport. Tele Züri, the local TV channel, later says that one out of three inhabitants tuned in to the live broadcast from the Hallenstadion. An oompah-pah band plays on the podium. Well-dressed city folk rub shoulders with loden-clad peasants, finishing their lunch in the adjoining restaurants and bars. A giant television screen throws up the picture of chairman Senn as he opens the proceedings for the last time in his career. Beside him, suave, silver-haired, dark-browed, Studer tries to banish the tension from his body-language. They must sit there for four hours or more taking all the rubbish that the universe of UBS shareholders, from the smallest to the biggest, wants to throw at them. There is Ebner - they've seen him arrive dressed in an immaculate pale grey suit and the inevitable bow tie, accompanied by his wife Rosmarie. They've spotted Ekkehard Wenger, the professor from Würzburg in Germany, veteran scourge of many a protracted German blue-chip AGM, with his interminable lectures on shareholder value. Senn has an antidote to long-winded speakers which he thinks will work: a five-minute guillotine on all speeches - after five minutes the microphone automatically cuts off. Before them at the end of the day, the last item on the agenda is the vote for or against Studer and three other candidates for membership of the board.
Senn kicks off by answering a written question from Ebner: how many of its own shares has UBS sold since the beginning of the year? A press report in March said UBS was discussing the tax treatment of shares that it had purchased around October 1994 to defend itself from an Ebner onslaught. A purchase of more than 10% is regarded as a partial liquidation of the company, with heavy tax consequences, unless the stake is sold again within two years. Of the 2.6 million shares that showed up on the year-end balance sheet, says Senn, the bank has sold 2 million. But he won't say to whom. The Ebner camp suspects that UBS has parked them with Swiss Life, with whom the bank has a joint venture. But a UBS spokesperson later tells Euromoney Swiss Life "has no participation in the shares of UBS".
Senn describes how he was "extremely taken aback, not to say shocked, by the manner of Gut's [merger] proposal" and explains why it was rejected. Then the five-minute speeches begin. The first attacks Ebner: "It's not just a question of cash-flow, Mr Ebner. Don't just think of performance but of the people who depend on their insurance policies." With some side-swipes at Credit Suisse, the attacks on Ebner continue: "Ebner and Co want higher and higher returns, nothing more. That's the new religion. It's very seductive. But remember an old American Indian saying: 'Material wealth impoverishes man'."
Wenger chastises all the big Swiss banks for their poor return on equity, far lower than Anglo-Saxon banks. He asks what happens to their already bad real estate portfolios if property prices fall even lower.
Ebner, when he appears on the big screen, is almost conciliatory. "UBS," he says, "could be one of the finest banks in the world and one of the best employers. All it needs is a strategy to optimize returns." But he offers a token criticism of the management of UBS as being "average at best...They maintain the delusion that there is a contradiction between being a good employer and a profitable company."
Only two investors attack Studer himself - one accuses him of driving up fees and cutting branches - "You [Mr Studer] can't accuse Ebner of wanting to destroy jobs" - the other recalls his poor performance in a televised debate with then UBS board member and Ebner-associate Blocher in 1992, on EU membership - "which leads me to doubt his leadership qualities".
One speaker protests: "People who envy the bank want to squeeze it like a lemon. We will not be squeezed by Mr Ebner, or blackmailed by Mr Gut. Mr Ebner, I offer you a lemon [the speaker takes one from his pocket], and if you like you can share it with Mr Gut."
Some 31 million votes or 80% of the voting rights are represented in the stadium, but apart from Ebner no major shareholder ventures to speak. It's a day for the little folk, a day of democracy, explains a meeting veteran. The mood in the hall seems 100% behind Studer, but the UBS board knows not to be misled by popular sentiment: that isn't how the powerful votes are cast. The ballot boxes for the final vote go round. Studer and Senn, four hours in the firing line, practise the appearance of quiet confidence. A rough vote-count comes in: around 19 million for Studer and 11 million against - the Swiss equivalent of motherhood and apple pie has won the day.
At a hasty press conference a relieved Studer promises strategic changes at the bank, but warns "you can't get rid of bad debt provisions; you can't outsource them". Surprise guests at the occasion are Ebner and Schiltknecht, keen to pay their respects to the hero of the hour.
But, says Ebner in a confidential aside: "It's not over by a long chalk. Who do you think has been buying UBS shares for the past few weeks?" Swiss Bank Corporation, he suggests: "They're already merging, they're doing a dance together."
Epilogue
Gut saw UBS, an apparently impossible prize, cross his sights like a target in a shooting gallery. He owed it to his shareholders to have a go. A merger of two big Swiss banks would have been unthinkable even a year ago. But the jumbo-merger of Ciba-Geigy and Sandoz now in train meant that in the past few months everyone in Switzerland had been paired off with everybody else.
If we believe Gut's vision, CS Holding and UBS had an opportunity to form an alliance that would bring them into contention with the likes of JP Morgan, Chase/Chemical and Merrill Lynch. That goal probably blinded him to the terrible overlap the two banks would have had in Switzerland. In some cantons the CS group already has a branch of Credit Suisse, and its satellites Swiss Volksbank and the Neue Aargauer Bank in the same high street. Having another branch to integrate would have been an extra headache, and a political nightmare.
Even if this seemed a digestible sacrifice, given the need to cut at least another 15,000 banking jobs in Switzerland, Gut made two serious mistakes, as even his friends point out. He underestimated the risk of a leak. And he put a time-frame on a UBS decision.
It seems he consulted few people before calling Senn. "I know of three CS Holding board members who weren't informed," says a board member at another big Swiss bank. Nor does Gut seem to have formulated a merger plan or considered which bits of the group would be kept and which spun off. This surprises those who remember how meticulously he has planned other takeovers. Some say he was advised, but badly, by a group of pension fund managers.
Although there were rumours that Gut, Ulrich Bremi, chairman of Swiss Re-insurance, and Peter Spälti, chairman of Winterthur Insurance, were planning something together, and even collaborating with Ebner, there is no evidence to support this. Bremi is a CS Holding board member; Spälti would be, if he hadn't resigned so recently from the UBS board (after UBS agreed a joint venture with competitor Swiss Life, behind Spälti's back). Each has a joint venture with a part of the CS group. If CS were to merge with UBS those ventures would be directly affected. Winterthur and Swiss Re each bought shareholdings in UBS this year. But fitting those facts into a conspiracy can only be speculation.
Ideally, Gut's proposal to UBS needed time and smoke-filled rooms to mature. But Gut may have seen only a small window of opportunity. UBS was on the ropes and might possibly have jumped at this chance to rid itself of Ebner forever.
Gut's obvious Swiss rivals say the affair has considerably damaged his reputation. He's under pressure to make his group perform. He has been looking for new life-blood in Europe to help CS Holding grow. First, he tried to buy Commerzbank, then Creditanstalt-Bankverein. Swiss Volksbank, bought in 1992, has broadened the group's domestic retail base, but at the cost of Swfr6 billion in provisions for bad property loans.
Internationally CS First Boston and Credit Suisse Financial Products provide the Swiss group with a unique range of businesses, but somehow the structure isn't working, yet. Turf wars and battles about compensation abound (see separate article, page 46). Although investment banking's return on equity is around 15%, the group's average of 8.7% is nowhere near the yield of a Morgan Stanley or Merrill Lynch.
Gut is admired for taking his group as far as this, having rescued it from the Chiasso scandal in 1977. But now he is having to compete with integrated global powerhouses. To do so he may have to break some bones and integrate his group more tightly, as he has just done in Germany. In the US it's more difficult, since he doesn't want to lose Credit Suisse's grandfathered banking licence. His admirers say: expect more surprises from Gut before he retires in 2000.
A pyrrhic victory
Senn staked everything on getting his appointee Robert Studer elected as his successor. He succeeded, but UBS is in the same, if not worse, position, as it was before. Martin Ebner and his supporters still amassed 11 million votes (38%) against Studer on April 16. Studer is under enormous pressure now to justify his appointment as chairman and to deflect criticisms, not just from Ebner, that UBS is a flabby, risk-averse, over-conservative institution. Even the bank's triple-A rating has become a burden, suggesting that, if global banking is about risk management, the bank at 45 Bahnhofstrasse isn't working its capital hard enough.
Studer is regarded by his peers as rather a lightweight. But that same peer group sees in Studer's successor as chief executive, Mathis Cabiallavetta, a worthy rival and the man most likely to guide UBS aggressively into new territory. "I'll never be as good as the nice things you write about me," Cabiallavetta told a press gathering last month.
UBS must somehow end the embarrassing four-year siege by a major shareholder - "the tail wagging the dog" as some put it. One hope is to silence Ebner by raising the bank's return on equity to Anglo-Saxon levels of 15% to 20%. But the cost-cutting needed to do that would most likely be politically unacceptable in Switzerland - without the smokescreen of a merger.
UBS cannot avoid the label that it is now in play. It is a solid bank, but it has not made the strategic breakthrough internationally that CS Holding and Swiss Bank Corporation have done. Apart from some strength in the UK equity market, it has little to show for the many millions spent on growing market share in Europe and the US.
Germany's Allianz insurance is said to have looked seriously at UBS. It was even rumoured to have bought a call option on UBS stock from Ebner two years ago but, after UBS and Swiss Life formed their joint venture, it let the option expire.
Next year UBS has agreed to buy a 25% stake in Swiss Life, a stake that Swiss Life can recall if there is a change of status at UBS. "It's a kind of poison pill," says Studer. Studer dismisses the thought of anyone bidding for UBS: "We have a market capitalization of around Swfr30 billion. A serious bid would have to come in at Swfr50 billion to Swfr70 billion."
But the cash might be forthcoming and the poison pill easily swallowed if UBS looked like fitting other long-term strategic goals.
Still wagging the dog
Every time the Swiss establishment thinks it has Ebner in a corner, he finds an exit route they haven't thought of.
His adventures with UBS registered shares are a case in point. Although a majority of UBS shareholders voted in November 1994 to unify their holdings into one class of bearer shares, the resolution has been blocked by an Ebner lawsuit that could drag on for 10 years. And in the meantime it appears Ebner's BK Vision has sold the bulk of its UBS registered shares and replaced them with bearer shares.
Ebner's performance at the UBS shareholders meeting disappointed those who expected a show-down with chairman-designate Robert Studer. Ebner's speech was tame and, after the meeting, he went out of his way to congratulate Studer. Is the gadfly of the Swiss establishment converting himself into a loyal UBS camp follower?
Ebner-watchers have learned not to take anything he says at face value. His lectures on shareholder value have a hollow ring. As one critic points out, if he believed what he said about return on equity he would be investing in Barclays not UBS. But Ebner's game can only be played in Switzerland, where the Chinese walls between broking and fund management are paper thin, and where dealing prices are often far from transparent.
Ebner for years has shaken up the Swiss marketplace and kept it on its toes - but how long can he keep it up? "Ebner is finished," says one interested party, "the revolution is eating its children." Don't hold your breath.
The ghost at the feast
Swiss Bank Corporation in Basle pretended to dismiss the CS/UBS merger proposal as an all Zurich affair. But as the drama progressed, the name studiously not on people's lips but undoubtedly on their minds was that of the third Swiss bank. Now that the merger idea has been broached, and a CS/UBS combination has been blown apart, only two other combinations remain: SBC/CS or SBC/UBS.
Outgoing UBS chairman Nikolaus Senn flippantly suggested that SBC and UBS would be a better fit. He's right. The ownership structures are more similar; there is less overlap on the domestic retail side; SBC Warburg is strong in risk management, international equity and corporate finance; UBS is stronger in fixed income and reasonable in equities; there is less overlap in Asia.
SBC was rumoured to be buying UBS shares last month, to help it exorcize the Ebner threat. UBS chief executive Mathis Cabiallavetta, and Marcel Ospel, who becomes his counterpart at SBC this month, are relatively young, dynamic, and good friends. Good enough to work in the same shop? It would be ironic if Gut's 21st century vision for his own institution drove the other two Swiss banks into each other's arms.
The biggest loser
Gut was right about one thing, says one sympathizer, Switzerland has lost its way.
Market transparency has killed profitability in the home market, not to mention the expense of operating there - 2% to 4% commissions are a thing of the past. The most advanced companies, such as ABB and Nestlé, have all but emigrated, in terms of their capital, ideas and production. Novartis, the merged product of Ciba-Geigy and Sandoz, is likely to do the same - at present Switzerland accounts for 36% of its expenses but only 3% of its revenues.
Since the Swiss economy has priced itself out of international competition, the world-class Swiss banks will follow ABB and Nestlé, keeping a toe-hold in Switzerland only for reasons of brand-name and prestige.
| Economies of scale - the three big Swiss banks |
|
|
|
CS Holding |
Union Bank of |
Swiss Bank |
|
|
Switzerland |
Corporation |
| Total assets (Swfr) |
412.7 bn |
386.8 bn |
288.3 bn |
| Total capital & reserves (Swfr) |
17.4 bn |
23.0 bn |
14.1 bn |
| Net profit (Swfr) |
1.4 bn |
1.7 bn |
1.1 bn |
| Return on equity |
8.60% |
7.50% |
7.5%* |
| Rating (S&P - medium term debt) |
AA+ |
AAA |
AA+ |
| Estimated funds under management (Swfr) |
350 bn |
450 bn |
300 bn |
| No of employees |
33,527 |
29,071 |
27,236 |
| Of which outside Switzerland |
9,687 |
7,101 |
9,155 |
| Source: Annual reports |
|