The chief executive of UBS has attacked the UK government for its public neglect of the City of London, warning that tougher regulations will see Britain and the rest of Europe cede investment banking business to Asia and the US.
Oswald Grübel, the veteran banker who has led the Swiss bank back from the brink of collapse over the past two years, said: “The government is so quiet about [the City]. Only behind closed doors do they pay lip service to wanting to keep the City. If it is abandoned by the government one day, God help you.”
The comments, in an interview with the Financial Times, echo the privately held views of many bankers who complain the British government’s recent Project Merlin peace deal with UK banks did nothing to convert years of banker-bashing into a pro-City stance.
Mr Grübel, 67, said that like all foreign banks UBS needed to know whether London – the main base of its core investment banking operation – was the right place to target investment.
“Companies like us, who have 7,000 people in the City, have to make commitments, not from today to tomorrow, we have to make 15-year lease commitments. We would like to know where the City is going in the next few years.”
Mr Grübel suggested the US and Asia were likely to win a growing share of the investment banking business of UBS and other banks, at the expense of the UK and Switzerland, which has announced that it will hold its banks to far stricter capital requirements than elsewhere.
“If in one part of the world you have an 8 per cent capital requirement, and in another part of the world a 19 per cent ... you don’t have to threaten, you know where the business is going,” he said.
Mr Grübel was even more outspoken about the innovative bonds – contingent convertibles, or cocos – backed by regulators, particularly in Switzerland, which he described as “a very dangerous instrument”. Cocos work by converting from debt into equity if a bank’s capital ratios fall to a pre-assigned level and are supposed to make a bank safer.
But unlike Credit Suisse, which recently launched a successful $2 billion coco issue, UBS has been highly skeptical. “As soon as you get near these trigger levels – you don’t have to hit them – what do you think shareholders will do?” he said. “They will get the hell out of that stock, so fast, because you know it will halve in value if it’s triggered.”
The vicious cycle would continue as bank depositors, spooked by a sudden fall in the share price, would withdraw funds in panic, Mr Grübel said. Regulators seemed oblivious to the risks, he said.