The leader of the Union Bank of Switzerland (UBS) criticized the UK government for its neglect of the City of London and warned that tougher regulations on the Banking Industry will see Britain and the rest of Europe losing investment banking business to Asia and the US which have more favorable regulations. The UBS leader went as far as saying that London may not be the right place for their business.
Oswald Grübel, was successful in leading the Swiss bank during the financial crisis from the brink of total collapse. In an interview with the Financial Times he was open and candid as to his views and what is probably the views of other bankers. Many are tired of the years of criticism of the banking industry by government heads and the threat of tearing apart the banks by dividing out the investment and retail divisions and the enactment of stricter regulations.
Mr. Grübel 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.”
“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.”
There have been other bank leaders that have voiced that stronger regulations against banks would likely lead to them pulling out of the UK. Mr.Grübel criticized the UK and Switzerland for their announcements to require stricter capital requirements.
“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,” Mr. Grübel said.
The government has a difficult task in trying to balance the taxpayer’s expectations on one side and the bank’s financial goals on the other. The bailout of banks and high banker’s bonuses has led to a poor image of the banking industry in the UK when lending has tightened to the point of concern by authorities. The government has tried to establish policies that will not allow another banking crisis to occur like the last one. In addition they have enacted heavy taxes on banks and pressured them to forego bonuses in favor of more lending.
Tax burdens on the banks increased to an additional 800 million pounds for this year and the European Union has limits that are the toughest in the world. In the US there are less stringent rules and Asia is more relaxed as well and is considered the fastest growing banking market in the world. The fact that banks would seek to move their base outside the UK would come as no surprise when leaders look to taking things back to the days of high profit and high bonus without the stricter regulations of today.
Grübel’s remarks are considered to be possibly damaging for the bank’s capital solutions and liability management division that is handling the issuing of CoCos, or contingent convertibles, which are being widely considered by banks to raise capital to meet heightened capital requirements under Basel III. Analysts have valued that CoCos could reach upwards of €700bn by 2018. His remarks could push investors to consider CoCos with other banks such as Credit Suisse or Bank of Cyprus which announced they would be issuing CoCos worth over £1 billion next week.
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