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Zurich Cantonal Bank spreads its wings

President Hans Vögeli wants to boost his bank's ratings

(Keystone)

Switzerland's third largest bank, Zurich Cantonal Bank, says it will expand its interests across the country - but not at the expense of its cantonal rivals.

However, the bank's strategy also includes increased asset management activities, which critics argue will increase its risks considerably.

The bank says the move is aimed at boosting income and cementing its position in Switzerland behind UBS and Credit Suisse.

But at a media presentation in Zurich, the bank's president Hans Vögeli said that cooperation with other cantonal banks was a clear priority in the growth strategy.

The strategy includes cooperation agreements, acquisitions and internal growth. However, he ruled out opening retail branches in other cantons.

"Up to now we had the two large global financial players [UBS and Credit Suisse] but we have not seen one strong nationwide Swiss bank," Vögeli told swissinfo.

"We have a very broad and highly professional line of services and products but we will restrict them to a niche activity - medium-sized and big enterprises in Switzerland... so therefore there won't be very strong competition with the other cantonal banks," he added.

Risk factor

Critics have questioned whether the bank, which is guaranteed by the canton's taxpayers, is taking an unnecessary risk.

However, Vögeli argues that the bank is no stranger to handling risk factors.

"We already have two major risks," he said. "One is that we cover some 43 per cent of the real estate market and secondly, we also have a geographical risk because we are restricted to the area of Zurich.

"So diversifying our activities into the asset management business is a clear strategy to get a diversification of risks."

Diversification

Vögeli described Tuesday's news that the cantonal bank of Vaud needed a cash injection of SFr1.25 billion ($850 million) as a case in point.

He said the "dramatic development" clearly illustrated the need for his bank to diversify.

"Some 83 per cent of the bad debts were derived from activities within the canton of Vaud. That exactly stresses our strategy," he said.

"If you restrict too narrowly into your local area, your canton, sooner or later you will get into problems.

"Therefore Zurich Cantonal Bank has a clear Swiss dimension, looking for some sound diversification geographically as well as business-wise," he added.

Vision funds

The bank has come under the spotlight of investors since July when it acquired the four "Vision" investment funds of the embattled Swiss financier Martin Ebner.

The four funds will be streamlined to three under the integration plans and action has already been taken to limit their exposure with the sale of stocks considered too risky (see related story).

"Bear in mind that we already have SFr20 billion under management. That includes some ten mutual funds already," commented Vögeli.

"By acquiring the roughly SFr3 billion assets from Martin Ebner, we have just enlarged our regular activities. It's not a new business."

"But in the Visions, there will be a clear difference from regular mutual funds in which you have some 100 to 120 stocks," he added.

"We will restrict the number to between 15 and 30 well-chosen stocks, allowing ourselves a more active management."

Low ranking

Zurich Cantonal Bank does not feature well in a recent ranking of the 24 cantonal banks by the monthly "Bilanz" economics magazine.

In its November issue, the bank comes way down in 20th position. However, Vögeli says this does not reflect the bank's real strengths, one of which is its "AAA" credit rating.

"The comparison between small cantonal banks and the Zurich Cantonal Bank is somehow unfair," he said.

"Bear in mind that the number one in the ranking is a bank with five branches and 14 ATMs, whereas our bank by law is obliged to maintain 114 branches and more than 150 ATMs.

"So if we talk about our cost structure, that's a hell of a difference."

swissinfo, Robert Brookes

Key facts

ZKB reported a third-quarter profit increase of 11.4 per cent to SFr435.7 million compared to the corresponding period last year.
Interest income for the first nine months of 2002 was down 4.4 per cent at SFr738.2.
The bank says adverse stock market conditions have impacted the value of its holdings and will strongly burden the 2002 financial statements.
Cost reduction measures have seen operating expenses overall fall by SFr36.6 million to SFr641.7 million.

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