You read it here first. In May 1996 Euromoney quoted a normally well-informed source in Switzerland as follows: “Who do you think has been buying UBS shares for the past few weeks?” Swiss Bank Corporation, he says. “They’re already merging, they’re doing a dance together.” Apparently they had been doing this dance since 1995.
The source was Martin Ebner, the Swiss banker who has been most instrumental in forcing the consolidation of Swiss finance over the past year. His threat to sell his roughly 25% stake in Winterthur insurance to a foreign buyer was enough to push the firm into the arms of Credit Suisse. His continued harassment of UBS top management, and his campaign to unify its registered and bearer shares, undermined the bank’s ability to act independently and damaged the reputation of its chairman Robert Studer.
Ebner’s billionaire status hasn’t prevented him from continuing to function, somewhat bizarrely, as a tribune of the people. Having cunningly moved his BZ group from Zurich to the neighbouring canton of Schwyz last month to save a whole year’s tax he faced angry demonstrators outside his bank’s new home: they wanted some of the money he’d saved to go on local good causes. Seizing a Bratwurst, the popular Mr Ebner declared: “My businesses will pay their taxes. As for my own money and how I give it out, that’s my affair.”
Popular Ebner certainly is. In Sonntags-zeitung’s Starparade for 1997, Ebner ranks fifth, only three places below Martina Hingis the 17-year-old Wimbledon champion, while top of the billing, in the land where money is king, are Marcel Ospel and Mathis Cabiallavetta, who will run the new United Bank of Switzerland.
Perhaps the Swiss most admire those who go for cost cutting and real return despite the loss of jobs or tax revenues. Credit Suisse chairman Rainer Gut, whose merger with Winterthur was not a job-shedder, slipped to 56th this year in the Sonntagszeitung ranking, from last year’s number 16 spot.
Are the Swiss right about Marcel and Mathis? There must come a stage at which a group of businesses clustered together is just too big and too diverse to manage. SBC Warburg O’Connor Dillon Read Brinson Brunswick LTCB run by risk-barons out of Basle, Zurich, London, Chicago, Moscow and Tokyo, not to mention UBS, Philips & Drew, SMH, may be too much for even David Solo’s brain to keep track of. (Solo is Ospel’s right-hand man, ex-O’Connor, now chief operating officer of Warburg Dillon Read.)
The refreshing O’Connor culture has had a good run. Is it now about to spread itself too thin?
Certainly SBC Warburg O’Connor talent was rewarded in the new UBS management structure. Was this because the Zurich bank had damaged its standing in one way or many? Contributing factors were: its mishandling of the Holocaust inquiry; the defensive position forced by Ebner; and the loss of at least Sfr200 million ($140 million) in equity derivatives.
Perhaps this last showed how poorly qualified its managers were to run global wholesale and investment banking. SBC’s risk controllers have earned a reputation for their internal rigour. They would have made short shrift of any shortcomings in UBS’s risk management, particularly any cavalier attitude to long-term equity derivatives.
Rigorous risk control and team spirit may not be enough to steer the world’s second biggest bank to a 20% return on equity. Without a share in the US oligopoly perhaps those returns aren’t achievable in global investment banking.
European banks’ adventures into investment banking have been driven more by executive delusions of grandeur than by concerns for shareholder value. Brave acts, in this respect, were performed by Martin Taylor of Barclays, Derek Wanless of NatWest and the two big Bavarians, in scorning the race for global coverage. Dresdner Bank has demonstrated how quickly the dreaded reputation risk can knock even a well-found bank off course.
“I have lost my reputation . . . the immortal part of myself,” says Othello’s lieutenant Cassio after wounding Montano, governor of Cyprus, in a drunken brawl.
A bank with global ambitions, or indeed any bank, must consider its exposure to this most elusive and least quantifiable of risks – misbehaviour of any of its staunchest officers.
The Swiss Federal Banking Commission’s reaction to the Swiss merger is exactly right: to heighten its supervision of its two global superbanks for systemic as well as fiduciary reasons. Giant banks may try to reduce the risk of a total reputation meltdown by giving diverse names and identities to their different elements. But those could turn out to be as disasterproof as the bulkheads on the Titanic.
Having forced Swiss finance into jumbo mergers, Ebner may now be looking for other worlds to conquer. Germany is fertile ground. But Austria is more like Switzerland and, according to rumour, Ebner may already be interested in buying a stake in Bank Austria from WestLB or the city of Vienna – something new for the people’s tribune to play with.
