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Kielholz Bets on Dull Countrymen Molding Swiss Legacy
Walter Kielholz’s career is a tale of how to survive in Swiss finance: be a bit of a politician, a bit of an opportunist and don’t show off.
“If you always think twice and hope for something better to show up, that’s probably not good enough,” said Kielholz, chairman of Swiss Re Ltd. (SREN), sitting in a black Le Corbusier armchair in his paneled office overlooking Lake Zurich. “The success will be defined afterward by history.”
Kielholz, 62, the son of a tailor, has juggled top posts at Swiss Re (SREN), the world’s second-biggest reinsurer, and Credit Suisse Group AG (CSGN), Switzerland’s No. 2 bank, for more than a decade. He emerged unscathed from the financial crisis, even as both firms reported record losses. Elected for a new three-year term as Swiss Re chairman in April, he’s intent on cementing his 24-year legacy at the firm by picking the next generation of leadership.
“The handover is my ambition,” he said from his office, where two abstract paintings, including one by American artist Ellsworth Kelly, dominate the decor. “I have to make sure that there is a solid next generation in place.”
Kielholz watched some of the most prominent Swiss financiers of his own generation depart under a cloud, trailing a legacy of losses.
Former UBS AG Chairman Marcel Ospel, 63, left in 2008 as the biggest Swiss bank amassed record losses from subprime mortgage bonds. Lukas Muehlemann, the 63-year-old former Credit Suisse chairman and chief executive officer, quit in 2002 after leading the company to a then-record loss for a European bank. Mathis Cabiallavetta, 68, a former chairman of UBS, resigned in 1998 over 793 million Swiss francs ($841 million) in losses from the collapse of hedge fund Long-Term Capital Management LP.
Kielholz said Swiss Re is preparing new leaders to follow himself and CEO Michel Lies, 59. It expanded the executive committee by four people in the last two years and promoted managers including 44-year-old Christian Mumenthaler, now CEO of reinsurance.
Renato Fassbind, 58, a former chief financial officer of Credit Suisse who became a vice chairman of the board at Swiss Re last year, may replace Kielholz as chairman when he retires, Swiss magazine Bilanz reported last month, citing unidentified people. At Credit Suisse, Kielholz protégé Urs Rohner, 53, became chairman in 2011.
One thing Mumenthaler, Fassbind and Rohner share is a Swiss passport, a key qualification for running the nation’s biggest companies, according to Kielholz. At least the chairman or CEO at the country’s top firms should be Swiss, he said.
“Most of the top management today of the large Swiss firms are not Swiss anymore,” Kielholz said. “They do not maintain a dialogue with the Swiss politicians on a regular basis, they do not entertain a dialogue with the public in Switzerland, they think they’re guests here and they should not be involved in the political debate. I think this is a big disadvantage.”
Forty percent of the top two posts at the 20 companies in the benchmark Swiss Market Index (SMI) are filled by Swiss citizens, compared with 71 percent 10 years ago, when one person sometimes held both positions, data compiled by Bloomberg from company reports show.
“Until the late 1990s, Switzerland Inc. was still working,” said Oswald Gruebel, a former CEO of both Credit Suisse and UBS, referring to the ties between companies that often included board memberships and cross shareholdings. “When it all started to break apart was with Swissair, when it became transparent how grossly mismanaged that company was.”
Swissair, founded in 1931 and for decades a symbol of national pride, was grounded for two days in October 2001 after running out of cash and later filed for bankruptcy with debts of about 17 billion francs.
Kielholz said Swiss executives need to provide a counterweight to politicians in the economic policy debate, which risks becoming too domestically focused without them.
“It’s difficult, it’s the same as if everybody in the U.K. would be French or so,” he said.
In 2010, Kielholz criticized the stricter capital requirements proposed for UBS and Credit Suisse in the aftermath of the state bailout of UBS, arguing they went too far beyond international regulators at the time.
Swiss banks have been required to accumulate capital since the financial crisis, while parrying attacks on the nation’s tradition of banking secrecy. The financial industry’s portion of economic output shrank to 10.3 percent in 2012 from 12.4 percent in 2007, data from the Swiss Finance Ministry show.
“Swiss banks are in a particular situation because nobody will help them,” Kielholz said. “They have to help themselves.”
Kielholz’s roles running an insurer and a bank gave him an unusual range of experience, said Charles Dallara, the former managing director at the Institute for International Finance, an industry lobby group where Kielholz serves as vice chairman.
“He’s one of the few individuals that I know who has been able to rise to the most senior levels in both worlds,” Dallara, 64, said in an interview.
Kielholz graduated from Switzerland’s University of St. Gallen with a degree in business finance and accounting. He started at General Reinsurance Corp. in 1976 and a decade later joined Credit Suisse, where he was responsible for relationships with large insurers. In 1989 he went to Swiss Re and, after rising to CEO, joined Credit Suisse’s board in 1999.
Dallara said he values Kielholz as a consensus builder and listener, whose jokes even during serious discussions help bring people back to reality.
“He is a very cosmopolitan person, and therefore he understands how to handle various cultures,” said Josef Ackermann, the chairman of Zurich Insurance Group (ZURN). A Swiss native who formerly ran Frankfurt-based Deutsche Bank AG, Ackermann is also a St. Gallen alumnus.
At St. Gallen, Kielholz’s political inclinations became clear: he joined a business-oriented student group rather than students protesting the Vietnam War, according to his authorized biography, called Walter Kielholz, Swiss Re und Credit Suisse, der Freisinn und die Kunst, by Rene Luechinger.
In 2004, he co-founded Friends of the FDP, an organization supporting the Swiss pro-business party, together with former UBS CEO Peter Wuffli, 55, chairman of Swiss Life Holding AG and Adecco SA Rolf Doerig, 56, and former chairman and CEO of Novartis AG (NOVN) Daniel Vasella, 59, Bilanz reported in 2009.
“He’s definitely a very important person in Switzerland, politically and economically,” said Gruebel, 69, a German native who was CEO of Credit Suisse when Kielholz was chairman. “He’s very well embedded politically, he knows Switzerland and its people, he’s part of it. At a cocktail party he’s certainly the right person to stand next to.”
Kielholz is described by current and former colleagues as controlling and driven. Gruebel says he had heated business debates with him at Credit Suisse that “the whole bank could hear,” though those arguments were never personal and the two would return to business as usual afterward.
As non-executive chairman of Swiss Re he’s still hands-on, and has regular meetings with the executives sitting on the same floor at the headquarters on Zurich’s Mythenquai, a lakeside lane that’s home to the most important Swiss insurers, said George Quinn, CFO since 2007.
“As you’d expect, given his role, he likes to be kept informed,” said Quinn, 46, who was hired by Kielholz in 1999. “If there is anyone at Swiss Re whose blood has Swiss Re coursing through it, it is definitely the chairman.”
Asked about the share price graph on his Bloomberg terminal, Kielholz promptly got up and pointed out the swings Swiss Re has seen over the past 22 years.
“I took over in 1997 -- then we went through the bubble,” he said, pointing to the period from mid-1998 to mid-2002 when the Swiss Re share price averaged 164.65 francs. That’s more than double the level of 71.45 francs, where it traded when he took over as CEO at the end of 1996.
“Then I left -- here,” he said, pointing to 2003, when he gave up the CEO post at the reinsurer to take the chairmanship at Credit Suisse. He stayed in that post for six years until record losses at Swiss Re brought him back.
While the stock has more than doubled to 69.85 francs since his return, it’s below where it was when Kielholz became CEO and about a third of the levels reached during the dotcom boom. Investors don’t let him forget that.
“The share price used to be a lot higher,” Hermann Struchen, a Swiss shareholder, told fellow investors at Swiss Re’s annual meeting in April. “There is a lot of catching up to do.”
Kielholz agrees. For him, who owns more than 20 million francs in Swiss Re stock, boosting the share price is about his legacy.
After shareholders approved the dividend and a special payout totaling 7.5 francs a share at the April meeting, Kielholz applauded investors who purchased the stock at the depths of the financial crisis.
“If you had bought shares at 12 francs in March 2009, you would have almost gotten your money back now and have a share worth about 80 francs,” he said. “That’s what could be, had we all had the courage in the spring of 2009.”
At the nadir of the crisis, Kielholz turned to Warren Buffett, the world’s third-richest man and chairman of Berkshire Hathaway Inc., whom he said he’s been visiting regularly for 15 years. Buffett provided a 3 billion-franc cash injection after Swiss Re’s foray into sales and trading of securities led to writedowns of 5.89 billion francs in 2008.
“In hindsight, I would say we could have probably even done without” Buffett, Kielholz said in the interview. “But who knew that? In 2009 the world was really looking very sad.”
Swiss Re sold contracts protecting clients against declines in bonds, just as the worst U.S. housing market since the Great Depression sparked a global credit crunch.
Former CEO Jacques Aigrain, 58, ramped up Swiss Re’s financial products business in 2006 and 2007, when the reinsurance unit was coping with stagnant premiums. Aigrain resigned and newspapers including Tages-Anzeiger called for Kielholz, then vice chairman, to go as well. The Ethos Foundation, which advises more than 60 Swiss pension funds, said he was partly responsible for the losses.
Instead, Kielholz took over as chairman from Peter Forstmoser and continued a strategy of returning Swiss Re to its unglamorous roots, providing insurance to insurers. It’s the image of being “dull” that has helped Swiss financiers prosper internationally, Kielholz said.
“Very often people interpret dullness as also being very solid, which is actually liked,” he said. “The Swiss bankers and Swiss insurance guys do not come across in the world as particularly flamboyant.”
He learned the importance of dullness as a trainee in London in the 1970s, when London’s financial market consisted of “old army captains who had 25 telephone numbers of other army captains,” according to Kielholz.
“I went to Reed, the clothes store, and I bought a brown suit,” Kielholz recounted. When he wore the suit to work the next day, “the senior partner called me into the office and said: ‘Are you going to the races?’ That was the end of my brown suit.”
Kielholz still prefers not to draw too much attention to himself and to operate behind the scenes. He has been married for 35 years, rarely gives interviews or makes public speeches and isn’t found in the gossip columns of local tabloids. A former competitive sailor and an art lover, he doesn’t like talking about his personal interests.
Press coverage of Ospel contributed to the UBS chairman’s downfall in 2008 and to Swiss public hostility toward him. On Jan. 31, the day after UBS wrote down $14 billion in mortgage holdings and reported the biggest quarterly loss ever by a bank, Ospel went waltzing with his third wife at the Vienna State Opera Ball. Two weeks later, as UBS prepared to explain the losses to investors, Ospel attended a Carnival march in Basel, where he paraded masked through the city center playing a drum.
“Walter is very careful and is not anxious to seek a public profile,” Dallara said, adding that “he is not prone to make provocative statements,” earning him the trust of colleagues.
Kielholz sees the biggest risk for the Swiss financial center as standing out too much amid a fiscal crisis in Europe.
“To be the prodigy in a bad environment is not necessarily a good position,” he said. “You can do a lot of things right, and people might not love you more for that -- they might even hate you for it.”
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