Julius Baer Executive Board member Yves Robert-Charrue said that the shock write-down of Credit Suisse AT1 bonds as part of its takeover by UBS Group AG contributed to the reputational damage for Switzerland’s financial sector.
(Bloomberg) — Julius Baer Executive Board member Yves Robert-Charrue said that the shock write-down of Credit Suisse AT1 bonds as part of its takeover by UBS Group AG contributed to the reputational damage for Switzerland’s financial sector.
Holders of the junior debt were wiped out in the emergency deal to save Credit Suisse from collapse in March. Created after the 2008 financial crisis, AT1s are the lowest rung of bank debt, producing juicy returns in good times but taking the first hit when a bank runs into trouble.
“Any investor who enjoyed the high coupons and read the prospectus should have been aware that this could have happened,” Robert-Charrue, who is head of Switzerland, Europe, Middle East & Africa at Julius Baer, said at at Bloomberg’s Future of Finance Zurich event on Thursday. However, some investors, particularly in Asia and the Middle East, may not have been really conscious of the risk, he added.
“That triggered a lot of the negative perception the Swiss financial center is currently suffering,” he said. “In Switzerland, we need to do a hell of a job to make sure we work on the perception.”
Earlier, Agustin Carstens, General Manager of the Bank for International Settlements said central banks have made progress on fighting inflation, but the effort is far from finished. Policy makers “will have to be very persistent in keeping relatively tight conditions tight,” he said.
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Key Stories:
- Ermotti Hints at Big Cuts to Credit Suisse Investment Bank
- Credit Suisse AT1 Wipeout Is a Headache for Banks, Says Vontobel
- Final Stretch of Central-Bank Hiking Will Be Toughest, BIS Says
Breitling Sees Growth Potential in Luxury Watch Industry (4 p.m.)
Breitling AG has become one of Switzerland’s top eight watchmakers and aims to reach the top five, given the brand’s growth potential, Chief Executive Officer Georges Kern said. “Luxury has been democratized a lot” and there’s more buyers of watches in China, India, Indonesia and the US.
“The luxury industry for me is an endless growth story,” he said. “Anything we see today will be manageable. Every time you have a crisis or problems, you have a concentration on fewer brands.”
“You need to be in a good state of mind to buy luxury goods that are non-essential to your life. The war in Ukraine is not a good thing, inflation is not a good thing, interest rates obviously, a bank going bust is not a good thing. I dream about a world with no problems ,but we have to live with this.”
Breitling has raised prices about 5% over the past year and doesn’t foresee further increases, Kern said, adding he hopes that interest rates have peaked. Breitling could someday double or triple its revenue, he said. “We’re opening markets like India that are huge markets. We have lots of things on our plate for the coming years.”
BlackRock ETF Application Seen as Crypto Boon (3:30 p.m.)
BlackRock Inc.’s application this month for a spot Bitcoin exchange-traded fund is a “watershed moment” for the crypto sector, said Stefan Schwitter, head of asset management at Crypto Finance AG.
“They bring in know-how, how to manage risk, which at times is in short supply in the industry,” he said. “I think it’s been totally underestimated.”
Emi Lorincz, president of the Crypto Valley Association, said she expects more large firms to apply for spot Bitcoin ETFs. BlackRock’s filing has already led to a flurry of similar moves, with Invesco Ltd. renewing its application and WisdomTree filing with the Securities and Exchange Commission for its own vehicle.
Should they be approved, such ETFs could lure large investors like pension funds, which have been reluctant to hold assets like Bitcoin physically, to invest in digital assets, she said.
Blackrock’s Staub-Bisang Says Efficiency Key in Coming Year: (12:37 p.m.)
Blackrock Swiss head, Mirjam Staub-Bisang, sees controlling cost efficiency as a key topic for companies in the coming year. Any businesses that produce goods that make companies more cost efficient are very safe and attractive, she said.
Partners Group’s Wolf Scheider said that ESG themes and AI are key drivers that will change business overall.
“For us the most important thing is transformation,” he said on a panel with Bloomberg’s Francine Lacqua. “Client appetite has shifted more towards infrastructure and data given the current climate.”
Swiss Government Will Get to the Roots of Credit Suisse Crisis: (12:28 p.m.)
Switzerland will do everything it can to address problems in the Swiss banking sector and will propose solutions if needed, said Daniela Stoffel, Swiss State Secretary for International Finance, Federal Department of Finance.
“The last word will be with parliament. But we will do everything in our potential to really go to the roots of this,” she said.
Stoffel defended the decision to write off of AT1 loans as part of the UBS-Credit Suisse merger. “On Monday morning, not only AT1s would have been wiped, we would have had a multiple of bail-ins and shareholders would have been going without even the 3 billion” Swiss francs. All the alternative scenarios for Credit Suisse “would have been worse,” including the AT1s.
Citi’s McManus Says Swiss Corporates Seeking Diversification Post Takeover (11:41 a.m.)
Panelists are also scoping out the competitive landscape post-Credit Suisse takeover, and bankers are seeing concern from companies about the lack of choices for the kinds of services they need now that there is only one major global bank. Citi’s Marni McManus says that corporate clients are looking to diversify. Vontobel’s Heinzl says that having two major players would be preferential.
Julius Baer’s Charrue Says AT1 Write-Down Damaged Switzerland’s Image (11:39 a.m.)
Julius Baer’s Switzerland head said that the write-down of Credit Suisse AT1 bonds was a hit to sentiment about Swiss banking. The event “was big, it was visible, but the AT1 element really added to the negative sentiment.” Thomas Heinzl, chief financial officer at Vontobel, echoed those sentiments, saying it would be very difficult, or at least more costly, to issue an AT1 bond now.
Big Shifts From UBS-Credit Suisse Takeover Still to Come (11:30 a.m.)
Bankers from Citigroup Inc,. Julius Baer and Vontobel are gauging the impact of the mega merger on their own markets. For Yves Robert-Charrue, Julius Baer’s head of Switzerland, Europe, Middle East, the big shifts of people are still to come. Thomas Heinzl, Chief Financial Officer at Vontobel says that over the long term, he sees a very strong competitor emerging in the form of the fused firms.
Carstens Sees Dangers in Central Banks Not Doing Enough (11:10 a.m.)
The head of the BIS said it’s “far more dangerous” that central banks raise interest rates too little rather than too much as they seek to balance their efforts to cool inflation against the threat to economic growth. In his view, if policy makers go too hard, they can correct that “very easily and very quickly and very effectively.” But if they don’t do enough, inflation “will perpetuate itself,” requiring an even more aggressive tightening in response.
–With assistance from Paula Doenecke, Bastian Benrath, Myriam Balezou, Bryce Baschuk, Thomas Mulier and Andy Hoffman.
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