Prisma Reports (PR): How has the Swiss financial industry transformed and reinvented itself over the past ten years, and how do Swiss banks stand out today in the global market?
Urs Rohner (UR):
The Swiss banking industry has fundamentally changed over the past decade. This comes as no surprise if you consider the problems that the sector faced during that time. I am not only referring to the fallout from the financial crisis but also to legacy issues related to the way some parts of the business were run in the past. It is encouraging to see how quickly the industry here in Switzerland was able to adapt and reinvent itself.
Ultimately, the changes we have seen – which would have happened sooner or later anyway– have benefited the Swiss banking industry as a whole. For example, margins came under increasing pressure so banks had to streamline processes and become much more efficient in the way they operate. This is precisely what we have been doing at Credit Suisse for the last couple of years. We have completely transformed our organization, as well as the way we run the business and serve our clients.
When I joined Credit Suisse 15 years ago, my first impression was that banking was first and foremost a service industry. Even after all the changes we have seen since then – including the more recent advance of digitalization – I firmly believe that meeting the individual needs of clients and offering them optimal service is at the heart of banking. Of course, you must have the necessary experience and expertise to deliver good performance and inspire trust in your clients.
Banking has always been a highly skilled profession and we invest continuously in the best talents. Viewed overall, I would say there has been an increase in the quality of the professionals working in the industry. Swiss bankers, especially those in the high-networth client space, have a deep understanding of investment strategies and financial instruments and they can deal with the complex needs of clients and offer expert advice on wealth generation and other topics. They also understand the needs of entrepreneurs and can support the transfer of wealth to the next generation.
(PR): You already mentioned digitalization. What can you tell us about Credit Suisse’s digitalization agenda? Which innovative solutions, projects or technologies can we expect from Credit Suisse in the near future?
(UR): Digitalization is fundamentally altering the way banks operate and engage with their clients. Of course, individual clients have different ideas about what they need and expect from their financial partner. At Credit Suisse, we routinely ask ourselves what the client of the future will look like, and how private banking will evolve as a direct consequence of digitalization. Today, individual clients can do most of their banking on their mobile phones. We already have a sophisticated mobile banking platform but there is a lot more we can do to harness the full power of technology. That said, we are not only leveraging technology in our client-facing operations. We also started digitalizing processes in our Compliance function in recent years. Today, we have tools in place that provide us with a single, centralized overview of clients who have different relationships with the bank around the globe. Naturally, having a swift client onboarding process or efficient measures to combat money laundering are not key factors that set you apart from your peers. However, if you don’t do these processes well, it may impact on your ability to acquire clients. It is totally irrelevant how the process is done and who does it; the key is to improve efficiency and reliability. Digitalization is changing the way people think about banks.
In future, we may well see some traditional banking roles disappear as a result of digitalization. That said, there are many areas of our work where the human element remains essential, such as providing advice, understanding the markets or defining investment strategies. Of course, the personal touch is still hugely important when it comes to cultivating a strong relationship with our individual clients. Here, we assume various roles – as a financial partner, a coach or indeed a sparring partner to them.
In summary, you could say that the key is to protect your core competencies and to find the so-called ‘sweet spot’. Digitalization and the drive for innovation are forcing us to make these decisions. This is not happening overnight but I do believe that five years’ from now, banks will look very different to how they appear today.
(PR): That raises an important point about cyber-security, which comes with Big Data and industry 4.0. How well prepared is Credit Suisse?
(UR): Of course, the advent of distributed ledger technology (DLT) is associated with cyber-risks, the scale of which is not to be underestimated. Banks started relatively early with this because they are used to store data. I recently hired an expert in this field from the outside, as I wanted somebody who thoroughly understands the topic. It is imperative that we have the right procedures and people in place so that we can navigate this challenging area.
At Credit Suisse, we are very engaged and interested in DLT. Based on our analysis, we are beginning to see its potential. In short, we recognize that DLT represents a huge opportunity but we also need to be realistic about the timeframe in which we can implement it.
(PR): Credit Suisse reported respectable 3Q18 results in November and you said at your Investor Day in December that you are nearing the end of your restructuring. What will come next for Credit Suisse and how will you ensure you can continue to deliver growth?
(UR): This performance reflects the impact of our three-year restructuring at Credit Suisse, which has now been completed. Management has done a superb job of transforming the Group. We feel comfortable about the new structure of our bank and our focus on serving ultra-high-net-worth and entrepreneur clients across the globe. We are also very pleased about the progress we have made with our cost base, which is more than 20% lower than in 2015. We now have a more resilient business, meaning that even when the cycle turns, we are in a good position to operate profitably. Importantly, we have disposed of most of our significant legacy issues, which puts us in a strong position to keep growing the business. We will take a disciplined approach to growth, avoiding pitfalls and continuing with the strategic direction we have defined. We are convinced that this is the best way forward for our bank.
(PR): Let’s look at the US market: Just how important is it for Credit Suisse today and what is your main focus in the Americas region?
(UR): The US has always been a key part of our business. It is the home of our investment bank. In our Global Markets division – just as much as in our IBCM business –
I can say that we now have one of the best advisory investment banking business of any European bank. It is one of the top players in the US. In short, it is very important.
You cannot run a leading global wealth management business unless you have access to investment banking services and advice at the highest level. Clients are seeking those services and we are very proud to be able to meet this need. Our Global Markets business in the US is still a sizeable operation, particularly in certain product categories such as Securitized Products and Credit generally.
(PR): How have recent tensions, including the US-China trade war, fluctuations in the dollar and political maneuverings affected trading operations?
(UR): Markets do not like this kind of tension, which normally leads to lower levels of activity. Any such reduction in trading activity results in lower revenues. We have seen less activity but we have not seen positional losses of significance.
It is clear that a full-blown trade war between the US and China would not be good for either the global economy or the banking industry. We will see knock-on effects worldwide, with the US and Europe being affected. An increase in tariffs will ultimately result in higher prices and a deceleration of economic growth. Naturally, this is of concern to us.
Political tensions around the world can directly impact on the economy and undermine economic growth by delaying production, investment and consumption – and all at a time when interest rates are very low or even negative. From a macroeconomic standpoint, it is not good to enter into a recession or downturn when interest rates are already at a low level.
That said, macro indicators are still good at present and we are seeing growth in the fourth quarter of 2018. However, the growth rate has slowed.
(PR): People said 2017 was the year of the ‘Goldilocks economy’ – i.e. not to hot and not too cold. It was also described as the year in which politics reemerged as a market driver. Looking back at 2018, how would you describe this year?
(UR): The start of the year was fairly benign but the environment slowly became more difficult. Political tensions increased on multiple fronts. Within Europe, the likelihood of a Hard Brexit increased and the different sides began to understand its possible implications. There was also discord between the Italian government and the EU. Looking beyond Europe’s borders, we saw tensions in Syria as well as between the US and Russia. The combination of all these factors led to reduced levels of activity.
Looking at the markets, the US and, in particular, Europe, experienced good economic growth across the year – especially in the second quarter. Europe really surprised market observers, although growth started to slow down somewhat as we entered the second half of the year.
In China, growth is also slowing. And as we know, when growth momentum in China slows, the rest of the world feels the effects.
(PR): What is your outlook for 2019?
(UR): It is difficult to say, although I would expect the basic economic environment to remain benign, provided there are no major disruptions on the political front. We will have to watch the growth rate very carefully. Overall, on pure economic fundamentals, I am reasonably positive regarding the outlook for 2019 – but let’s not forget that we have been in a growth cycle for over seven years now.
(PR): What do you see as the key fundamentals for Switzerland to preserve its innovation and competitiveness as a financial center?
(UR): One of the key fundamentals is having a highly educated workforce. To preserve the innovative strength of the Swiss financial center and its competitiveness in the global marketplace, we need to invest in home-grown talent and, at the same time, we must be able to attract top talents from around the globe. To achieve this, Switzerland needs to be recognized as a welcoming and inclusive country where people want to live and work.
(PR): How would you convince readers that Swiss banks are operating in a fully compliant and transparent manner, demonstrating a high level of integrity?
(UR): This one of our strengths and we should talk more openly about it. In Switzerland, banks operate in a compliant manner and have high conduct and ethics standards There is generally a high degree of client satisfaction and we have a good story to tell.
(PR): What is your final message to our readers?
(UR): If you haven’t yet experienced Swiss banking, you should definitely try it. I am convinced that you will recognize the difference.