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CNBC Transcript: Axel Weber, Chairman, UBS Group

Following is the full transcript of CNBC's exclusive interview with Axel Weber, Chairman of UBS Group. This interview broadcasted in Asia on Friday, 22 September 2017.

All references must be sourced to a "CNBC Interview".

Interviewed by Bernie Lo, Anchor, CNBC.

Bernie Lo (BL): As we're sat here in Singapore can you talk to us a bit more about the Asia growth opportunity for your business? Joining me on the show today - Axel thank you very much for joining us on the show. You know what's been going on at the U.N. Mr. Trump of course trying to tighten the screws even further on North Korea. I would have thought this would have been done by now. They've talked about it for so long. Your thoughts about you know trying to clamp down further on this hermit regime.

Axel Weber: Well like with any regime and we've seen discussions like that in the Middle East we've seen it in Ukraine. It's very important that there is collaboration. And so I think the U.S. in particular is working and has to work with China and others on solving this issue. The more the international community stands together and sends a clear and on an unambivalent message the better it is. So I think collaboration between the main player is important if they are divided then I think it's very hard. And those divisions and differences of views can then be exploited. So is there a clear message and a united message is what is key.

BL: One would have thought the conventional wisdom would have been that the sanctions would have been in place that the PBOC really did feel it necessary to issue a statement reminding the bank got to stop doing that. What does that tell you about the source of funding the kind of money movements that have made what's been going on in North Korea possible is it a Chinese issue is it is it is the focus on China.

Axel Weber: I don't think these issues are ever issues of a single country. It is very important is that if there is a sanction regime agreed that that sanctions regime is complied with. We've had that in the past and UBS like many of the international banks have always adopted U.S. sanctions regimes because the U.S. is an important market for us. So U.S. sanction regimes have usually been the blueprint for how we dealt with sanctions.

BL: When this whole issue started did you or did you feel it necessary to go into the back office and check the customer roles make sure there's no Kim or Rocket Man in there anywhere?

Axel Weber: We do that all the time. There is a very established process in the international banking community for know your client. We have to also know the major clients of some of our clients, so know your client's client is becoming increasingly something we look at and we have very established procedures for PEPs. So it's very important that not just on a systematic basis but also on an individual basis banks comply with these regimes. We have processes in place so these things should not have.

BL: It must be very difficult for you especially as you go around the region at a time like this to try to stay on message and talk about running the new UBS the way it is and trying to build the business and build the franchise. When the world is so mesmerized by the story about North Korean geopolitics and missiles and incendiary talk, when you heard that speech that you know that a very volatile speech a fiery speech by President Trump the other day at the General Assembly talking about totally destroying North Korea. Did any kind of, what did you feel, get a chill go down your spine?

Axel Weber: Well I think this is really a discussion with very high stakes on both sides for us as a bank. It is very important that we stay calm we analyze the situation and we give advice to our clients. Our advice to clients has been you know consistently over the last year that we are in a situation where geopolitical risks are at an elevated level. If you look at the sort of poll of U.S. economists that put that together we're now in around 98 per cent of the cases we've not been at such an elevated level of uncertainty and geopolitical risk. At the same time when you look at the VIX and other market indicators market volatility has been at an all- time low. And what doesn't really square is why markets are so benign about the situation when at the same time there is such heightened uncertainty and tension on the geopolitical side. Our explanation for that declines is that basically for markets it's very hard to price these political risks. And so they wait for things to evolve. They stay on the sideline and basically some of the clients' sentiment has been to not stay invested, to hedge and eventually to close positions. We advised them that this is not the time to do that. Markets still have some way to go. And geopolitical tensions have really been a key driver in markets. Except if there is a materialization of a massive burst.

BL: As long as we're talking about politics we do have it here. As a native German and there is a key election coming up it doesn't seem to be any doubt who is going to win this one but the last few years have not been easy for Chancellor Merkel. The whole refugee crisis with the way it was handled and then they are the subsequent flip flop the left a bit of a mark and humbled her a little bit. How do you think this is going to go? And Germany you know that the perennial criticism that Germany is the paymaster of Europe has so much in savings and is so apt to say that not spend and really maybe do something to boost the rest of the eurozone. Your thoughts about Germany's role.

Axel Weber: So first I think it is true that all opinion polls show Merkel with a very strong lead. And so she's going to win the election I think that's less of the question. The real question is who is she going to form a government with. And that's going to be difficult because the obvious choice will probably be again a third round of a grand coalition that's been hugely unpopular particularly with the Social Democrats. So Merkel is going to look to try and do everything possible to get into a coalition with potentially the liberals and eventually the greens. That might not happen but that means we will have dragged out negotiations to form a government potentially until December. And that will also mean that on Europe a few things will remain on hold till the new German government is in place which is sort of in the medium term is not a problem on content. Merkel has been running her campaign with a simple message. The first part is you know me, that is continuity and that is the key message. No experiments was the second line. And I think given all the volatility we've seen in politics after the election in America, after breaks that this was a welcome mood change for the German election. People know her for many years. It's her fourth term. She's been in power for 12 years. And Germans will always opt for this continuity. And at the same time you know the economic situation in Germany is quite good actually. We're grown way above potential. So this is not a period where anybody in Germany makes the argument that the EU or the euro has not been to the benefit of Germany. And I think keeping that going and getting new momentum into the eurozone and into the EU after the British have decided to leave is going to be the key challenge for both Merkel and Macron and to do this together on a united message is going to be what they work at.

BL: OK Doctor, let's talk about this part of the world because that's what you've been doing here spending time here for getting to know your clients better and spread the word up here. S&P joined the rest of the ratings agency and taking down their credit rating view of China. Now some people are surprised by the timing of it yet the very decent economic data flow we've been seeing. In particular China is very important to you. You just recently announced you'll be launching your first China private fund this year. This is going to be a very very difficult challenging proposition isn't it? I mean this is a market which is in many ways closed and where the locals always have had preference you know to get their footing in and develop first. How are you going to tackle this market?

Axel Weber: Well so for us we've been in mainland China since 1950. And really the bank has been here in the region as Swiss banking Corporation UBS for many many years. I mean we just celebrated our 50th anniversary here in Hong Kong. So we are a known trade name here. In China it's about two issues. The first one is you know when many of the markets look that China has been volatile. We actually decided to double our headcount in mainland China. We chose a long term continuous commitment despite the fact that there were some headwinds at the time. In terms of where China's going now the economic situation is clearly improving since the second half of last year and we see that in our business. So for us, staying on the ground remaining close to clients, even in difficult periods is something that our clients appreciate. What you talked about the asset management license is important for issuing domestic products and you have to look at it the following way increasingly mainland China and Hong Kong are collaborating with the bond connect with the stock connect. And there was even talk about an ETF connect. As we get international clients to be able to invest in mainland China through the gateway of Hong Kong on equities on bonds on the ETF, we can replicate our international wealth management products like you know balance portfolios with equity and fixed income for our clients internationally. This is something we couldn't do in the past. So having an ability to generate funds that replicate the sort of clients which for structuring their investment is going to be key.

BL: Finally give me a short answer if you will. Almost out of time actually. You know 19th Congress is the big thing everybody's waiting for. Do you think there's some sort of a point and kind of effort to maintain a popular positive image, because there are a lot of problems beneath the, near in China a lot of credit problems some people are afraid that things are going to go to hell after the Congress?

Axel Weber: Well I think people are always concerned about the banking sector and the instability we've seen that in Europe we've seen it in U.S. we've seen it in China. There will be a correction in the market. I mean we've seen there's still a lot of bad assets that need to be written off in many banks including European banks. And that will happen over time. I think China will engineer a transformation of the financial system and a slow open enough and we're confident that we can play a role in bringing China and its domestic banking and financial system forward as an international act.