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Swiss banking giants continue freefall

The future does not look so bright for Swiss banks Keystone

The global financial crisis has continued to trouble Switzerland's biggest banks, UBS and Credit Suisse, with both posting massive full year losses this week.

Observers were sceptical about claims from both banks that they could recover in 2009, especially UBS’s intention to post a profit one year after losing a record amount of money for a Swiss company.

UBS put in the worst performance last year, reporting nearly SFr20 billion ($17.3 billion) in losses after generating billions from a new share issue, foreign sources and receiving a substantial bail-out package from the Swiss National Bank.

Credit Suisse also fared badly, posting an SFr8.2 billion loss after receiving emergency funds from Qatar.

Both banks said they had reduced their exposure to potentially toxic assets, but they still have a substantial amount left on their books.

UBS has reorganised its wealth management division, effectively splitting up its operations in Switzerland, the United States and the rest of the world. Credit Suisse said it would continue to revamp its investment banking division by cutting back on riskier trades and stopping the practice of betting its own money.

Over optimistic

But analysts poured cold water over the attempts of both banks to sound an optimistic note by highlighting improved figures in January of this year.

“We will have to wait and see if management’s [overly] optimistic statement regarding the beginning of the year will be enough. Its comments three months ago were similarly positive,” Bank Vontobel analyst Marcel Staub said of UBS.

“It’s been a horrible few months for all banks, but in the case of Credit Suisse it’s been even worse than expected,” Bank Sarasin analyst Rainer Skierka told Bloomberg news agency.

Professor Hans Geiger, a former director of Zurich University’s Swiss Institute of banking and Finance, told swissinfo that it was “hard to say” if either bank could live up to their predictions. But he believes Credit Suisse is more likely to pull itself out of the mire first.

“Credit Suisse will find it easier because they have their business lines under better control than UBS,” he said. But Geiger still criticised Credit Suisse’s continued One Bank model, which forms close synergies between divisions, as “a conflict of interest”.

“I do not see how banks of this size can be leading banks in wealth management, private banking and investment banking,” he added.

Problems spreading

Losses at both banks were generated by bad bets in investment banking, but the damage, especially in the case of UBS, appears to have spread to their core wealth management division.

Wealthy clients pulled SFr58.2 billion out of UBS in the fourth quarter alone, while the amount of incoming funds to Credit Suisse slowed to a trickle by the end of last year. UBS’s position as the world’s leading wealth manager has been further weakened by an ongoing investigation by the United States authorities that accuse the bank of aiding tax evasion.

Geiger applauded the efforts of both banks to cut out the “spectacular wheeling and dealing” of previous years, but warned that there was only one way to win back customers.

“There has been a lot of talk about the loss of confidence, but the only way to regain the trust of their clients is to return to profit,” he said.

swissinfo, Matthew Allen in Zurich

UBS results 2008:

Net loss: SFr19.697 billion (SFr5.247 billion in 2007)
Assets under Management AuM (Group): SFr2.17 trillion (SFr3.19 trillion)
Net New Money NNM (Group): minus SFr226 billion (plus SFr140.6 billion)
AuM (global wealth management and business banking): SFr1.5 trillion (SFr2.3 trillion)
NNM (global wealth management and business banking): minus SFr123 billion (plus SFr156 billion)
Staff: 77,783 (83,560 at the end of 2007)
A shareholder dividend has not been proposed for 2008

Credit Suisse results 2008:

Net loss: SFr8.22 billion (SFr7.76 billion profit in 2007)
AuM (Group): SFr1.1 trillion (SFr 1.46 trillion)
NNM (Group): minus SFr3 billion (plus SFr43.2 billion)
AuM (private banking): SFr789 billion (SFr995 billion)
NNM (private banking): SFr50.9 billion (SFr53.5 billion)
Staff: 47,800 (48,100)
A shareholder dividend of SFr0.10 per share has been proposed.

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