Mühlemann takes stock

After presenting the results in Zurich, Lukas Mühlemann spoke to swissinfo’s Robert Brookes.

Mühlemann on Wednesday had to report a second quarter loss of SFr597 million ($399.5 million) after showing a profit of SFr368 million for the first.

Credit Suisse said the “unsatisfactory” result was due to the significant deterioration of the equity markets, which had caused the group’s insurance arm, Winterthur, to make substantial losses on its investment portfolio.

The result was in marked contrast to the bank’s main Swiss rival, UBS, which reported a second quarter net profit of SFr1.331 billion – down just four per cent on the same period last year.

Negative headlines

There has been increasing media speculation that Mühlemann will step down as CEO sooner rather than later after a string of negative headlines within the CS Group.

These include his role as a board member of the collapsed Swissair, his membership on the board of a controversial bank in Argentina and the business relationship with Swiss financier Martin Ebner, who has suffered a reversal of fortune at the stock market.

swissinfo: As one of the economic leaders of this country, what is your vision for Switzerland?

Switzerland has all the ingredients to be a prosperous country with strong positions in a number of industries like pharmaceuticals, banking, food, watches, precision mechanics and others where we have a great tradition and the skill base to do an excellent job.

swissinfo: Does the Switzerland in your vision include being part of the European Union (EU)?

I would put it slightly differently. I think it includes the notion that we are in the middle of Europe. But it also includes the notion that we have our own tradition, that we have a strong feeling that we have [our own] culture and a political system with democratic rights which are very important to us. And that will always mean Switzerland is slightly different than the European average.

swissinfo: Does that mean inside or outside the EU?

I think the question now is really not on the table and I think it will be many years until it comes up again. Now that we have the bilateral treaties [with the EU], we should see how the country fares with that, how our relationship with Europe develops, how we develop as a country and how the EU, with its vast expansion to the east develops. I think that by the time the question is on the table again, we will then have to take account of what has happened in the meantime.

swissinfo: What are the advantages of banking secrecy for Switzerland?

I think the primary advantage is not for Switzerland but for the customer of a bank, which has strict guidelines on bank secrecy. For me and for most Swiss people, a sphere of privacy also in financial matters is very important and I endorse a regime where that sphere is protected as long as it is not abused. These are exactly the rules we have in place. In contrast to other countries, banks do not automatically furnish customer information to the tax authorities. Bank secrecy is only broken when there is a criminal investigation and I personally think that’s a good regime. We should keep it because on the one hand it assures privacy, and on the other hand it makes sure that privacy is not abused for criminal purposes.

swissinfo: Do you not see a problem in that banking secrecy protects tax dodgers?

In Switzerland we have a withholding tax on financial instruments and there is currently a loophole on foreign financial instruments where there is partly no withholding tax on bonds. Here we’ve made a proposal in the discussions with the EU to close that loophole and I think it’s a very sensible proposal.

swissinfo: Should tax evasion be a crime in Switzerland?

I think the principle of self-declaration and the withholding tax is a very good system. It avoids criminalisation for small omissions or offences, but captures the revenue very pragmatically if the declaration is not complete. For that reason perhaps, Switzerland has one of the highest tax compliance rates in Europe.

swissinfo: Would you agree to a tax amnesty similar to the one in Italy in a country like Germany, for example?

I think that’s really up to the countries concerned and I can understand the rationale for it, but I can also understand the rationale against it. Our strategy is to provide good, innovative, high quality services not only in Switzerland but also in the most important countries in Europe and other areas of the world. So wherever our customers decide to take their fortunes, we hope to be there with a very good offering, high-class products and very high quality of service.

swissinfo: Would a tax amnesty elsewhere damage Switzerland as a financial centre?

As we have seen from the tax amnesty in Italy, the impact is relatively limited but it’s clear that the more attractive the situation is onshore in the most important countries in the world, the less attractive it will be for customers to take their money offshore. However, I believe that there will always be a large offshore market, not only for tax reasons, but also mainly because customers want to geographically diversify their holdings and because they do not find a local invest management offering that suits them.

swissinfo: Many managers have fallen from grace over the past two years. To what extent are you still proud to be a manager?

I think it’s clear that as long as equity markets went up, managers were highly applauded because they were seen as responsible for the very positive developments that people could feel in their pockets. And perhaps part of the applause was not deserved because it was just markets going one way. Now markets have gone the other way, and it’s clear that we have the opposite reaction. Those who have been applauded are now the scapegoats and are guilty for the losses suffered by many investors, including the mangers themselves. It’s a development that is certainly understandable and to be expected and in my personal case, I just try to do my work.

swissinfo: But you’re proud to be a manager?

I try to be proud of what I do and try to do the best I can. The manager as a profession is a very important one and I still think it is very important that these jobs are done well and with high integrity.

swissinfo: The public has made a lot of noise about top management salaries. What’s your idea of a reasonable salary for a man in your position at the top of one of the big Swiss banks?

That question depends very much on the “market” for those kinds of people. Typically, these people are highly mobile and do have alternatives. So the question that the boards who set these salaries have to ask themselves is what is fair in terms of performance, and this includes medium term performance, and what is fair compared to other jobs in other jurisdictions and this will vary. We have seen very high compensation levels when the performance of most companies has been excellent and I think there will be a fairly notable correlation with downward trends, particularly in the financial services sector.

swissinfo: To what extent did the fall from grace of Martin Ebner damage Switzerland as a financial centre?

If you look at the quantitative implications, I think it is relatively minor. When you look at the newspaper reports on the BZ group, people talk about equity investments of currently SFr6-8 billion, that’s not even one per cent of the market capitalisation of the Swiss stock exchange. So while it’s a big number in an absolute sense, if you look at the whole Swiss equity market and not even at all his investments, I think the number is relatively insignificant. On the other hand, it’s of course the case that Martin Ebner has been the advocate of equity investments also for the small savings account and he has been tempting and encouraging a lot of people to invest in equities. In that light, Mr Ebner’s problems now symbolise a little the problems many investors have with their equity investments where almost everybody made significant losses.

swissinfo: Some would say that the advantages of Switzerland as a financial centre have been eroded because stability and reliability can be found elsewhere so why should investors bring their money to Switzerland?

I think the advantage of Switzerland as a financial centre is still totally intact. We have very stable political situation, we have a very stable financial system, we have an excellently managed currency and we have a service offering that is second to none in the world so I believe that Switzerland’s attractiveness continues to be very high.

swissinfo: Would you swear that your figures at Credit Suisse are true and accurate?

We have always looked pretty closely at our financial statements and we have no problem in certifying them.

swissinfo: As far as corporate governance is concerned, what the Americans are doing now, shouldn’t the Swiss follow suit?

Many of the proposals that are on the table have already been adopted and I see no big gaps.

swissinfo: What gives you most enjoyment at the bank?

The notion of serving our customers well and the notion of keeping our offering current. Especially in these times, we have been able to help many people protect their assets in a fairly unfriendly environment.

swissinfo: What’s your biggest headache?

Currently the problems in our insurance business where we have taken all the steps to bring it back to profitability.

swissinfo: What would you say about a possible merger between Credit Suisse and UBS?

I think neither the country nor the two banks would be well served. There are very significant overlaps and we would have a market concentration in Switzerland that would be unhealthy.

swissinfo: Would you buy UBS shares now?

I think ours have more upside.