Banks Deal With Pressure to Boost Capital

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Jan. 10 (Bloomberg) -- Christopher Wheeler, Analyst of Banking at Mediobanca, discusses UBS being said to weigh an investment bank spinoff and previews what other banks may be doing in reaction to new regulations. He speaks on Bloomberg Television's “The Pulse.” (Source: Bloomberg)

Is that swiss regulators are making it increasingly difficult for swiss banks to carry out investment banking activities and that is a strategy which is designed to make the banks safer after the problems of the bailout during the crisis which was a big political scandal.

Do you have any idea of timing?

I think clearly, the timing is all about the hurdles you have to overcome to get through this.

We have reports that suggest 2017 is the most likely time they could get such a transaction carried out.

That will be ahead of when these rules finally come to place in 2019. at the moment, the banks are working towards 4.2% on a swiss basis.

What the finance minister said was, we think six to 10 is more relevant.

When she said that -- that could mean the banks are going to have to look at the investment banking business.

Ubs are very smart people.

They want to plan ahead.

This could be part of their longer-term planning.

Are there any other banks that may follow a similar path?

You look at goldman sachs and morgan stanley.

It is clear that goldman sachs wants to remain an investment bank.

Morgan stanley going more down the asset managers route.

I think in most cases, the investment bankers are very much an integral part of the business.

The argument ubs would make is that the investment bank works closely with the wealth management people in dealing with individuals.

My view is that it is not beyond the wit of man to come up with very robust service-level agreements to work on that.

We have to face the fact that regulators are taking a tougher line.

While the investment bank that they have created since they changed things in october 2012 is much more robust, it still has risks.

If they do spin off the investment bank, what would it means for shareholders?

It could be quite positive.

In our report we do a case study of when americans did the same thing for lehman brothers in 1994. it turned out successful partly because we had good tailwinds in financial services.

Also, if you look at 1998, it was the one-year lehman shares went down because it was the russian prices.

American express's went up.

That was what america -- american express wants to do.

Leave the wealth management to ubs and you understand the logic behind the argument we are making.

What would they do with the investment bank?

Would it be on the market listed as something else or would they sell it off?

I don't think there is a market for an investment bank at the moment.

The price wouldn't be -- american express realized this.

They try to sell lehman brothers two years earlier.

What happens is the shareholder has now got one share in what we call the investment bank and one share in the new ubs.

It is up to us what we do with those shares.

We have the investment banking business earning about a 14.5% return on tangible in 2013. the magic of it, it will have no legacy assets.

You mentioned goldman sachs, morgan stanley and jpmorgan, they all have a host of legacy assets.

Ubs shifted them down into a runoff unit.

I think it will have all the excess capital.

Thank you so much for all of that.

Now, let's focus on swiss companies.

Swatch shares a rallying today.

The watchmaker is optimistic on its 2014 outlook.

Here with more is caroline hyde.

This is a strong start to the year.

This is the owner of the omega

This text has been automatically generated. It may not be 100% accurate.


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