VZCZCXYZ0000
RR RUEHWEB

DE RUEHSW #0073/01 0491242
ZNR UUUUU ZZH
R 181242Z FEB 09
FM AMEMBASSY BERN
TO SECSTATE WASHDC 5658

UNCLAS BERN 000073 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV SZ
SUBJECT: SWITZERLAND'S TOP BANKS FACE CONTINUING STRAIN 
 
¶1.  Switzerland's leading banks, UBS and CreditSuisse, 
reported record-breaking losses in the fourth quarter of 
2008, highlighting the continuing financial strain on 
Switzerland's banking industry.  UBS and CreditSuisse 
announced 2008 annual losses of 17.1 billion USD and 7.1 
billion USD, respectively.  Despite these massive losses, the 
banks maintain a positive outlook with an expectation of 
profits in 2009.  However there is skepticism that UBS, 
facing client distrust and potential legal fines from the 
U.S., will pull so rapidly from the financial crisis.  Public 
and media backlash against fat cat bonuses hit an all time 
high when UBS announced it would pay 2 billion in bonuses 
despite receiving state aid. 
 
BANKS REPORT MAJOR LOSSES 
------------------------- 
 
¶2.  Switzerland's leading banks reported worse-than-expected 
losses in the fourth quarter of 2008, highlighting the 
continuing financial strain on Switzerland's banking 
industry.  UBS, Switzerland's largest bank and the world's 
leading wealth manager, announced a fourth quarter net loss 
of 8.1 billion Sfr (7 billion USD) totaling a 2008 annual 
loss of 19.7 billion Sfr (17.1 billion USD); the largest 
annual loss in the history of Swiss banking.  CreditSuisse, 
Switzerland's second largest bank, trailed behind with 6.0 
billion Sfr (5.2 billion USD) for the fourth quarter and 
full-year 2008 losses of 8.2 billion Sfr (7.1 billion USD). 
 
¶3.  UBS' financial woes are spreading from its investment 
banking division, once an isolated injury from toxic asset 
write-offs, to its wealth management division.  UBS' need for 
government infused funding of 60 billion Sfr and the ongoing 
investigation by the U.S. over claims of aiding tax evasion 
have done little to build or maintain client trust with 
clients reportedly pulling 58.2 billion Sfr (50.6 billion 
USD) (about 2 percent of total assets) from UBS' wealth 
management division in the fourth quarter. 
 
BANKS CAUTIOUS BUT UPBEAT ABOUT 2009 
------------------------------------ 
 
¶4.  Despite massive losses, UBS reported an "encouraging 
start to the year" with net new money in January and pointed 
to a strong capital ratio for 2008 year-end of 11.5 percent 
and a total capital adequacy ratio of 15.5 percent (largely 
assisted by a government rescue package).  UBS stated that 
its "near-term outlook remains cautious" and that it intends 
to further reduce its risk position, risk weighted assets and 
operating costs.  UBS will continue to implement its new 
strategy of dividing wealth management into two new divisions 
and restructuring from an integrated approach to refocus on 
Swiss core businesses. 
 
¶5.  CreditSuisse reported on February 11 "a strong start to 
2009 and was profitable across all division year to date." It 
reported "one of the strongest capital ratios in the 
industry" at 13.3 percent for year-end 2008.  The overall 
risk in investment banking was reduced in 2008 leading to a 
"significantly lower risk profile."  CreditSuisse CEO Brady 
Dougan expanded on the positive outlook by stating, "We have 
positioned our businesses to be less susceptible to negative 
market trends if they persist in the coming months and to 
prosper when markets recover."  CreditSuisse remains 
committed to an integrated business model, citing 
collaboration through its three businesses (investment 
banking, asset management, and private banking) as a source 
of stable, high-margin revenues. 
 
PAYMENT OF BONUSES PROVOKES PUBLIC OUTCRY 
----------------------------------------- 
 
¶6.  Scathing press comments and public backlash followed UBS' 
announcement that it would pay out 2 billion Sfr (1.77 
billion USD) in bonuses for 2008.  The media quoted numerous 
politicians and pundits calling the bonuses inexplicable and 
incomprehensible when UBS reported huge 2008 losses and was 
rescued by state funds.  Switzerland's financial regulator, 
FINMA, which approved the bonus payment, has also been 
questioned for its decision.  UBS originally asked for 3 
billion Sfr in bonuses, which was reduced by FINMA.  The 
media and public openly dismissed the grounds given for 
defending the bonuses such as the fact that all UBS employees 
are not investment bankers; many had profitable portfolios; 
the banking compensation structure is based on bonus 
payments; and that bonuses are needed to retain employees. 
 
¶7.  CreditSuisse, which designed a creative bonus structure 
for 2008, was better received.  The bank has issued a portion 
of its distressed assets as bonuses transferring the risk of 
further losses to the employees while reducing the bank's 
exposure. However, some critics argue that given 
CreditSuisse's losses no bonuses should be paid at all. 
Others argued that the converted assets should have been 
handed over at the original value, not marked down to 2008 
year-end value. 
 
COMMENT 
------- 
 
¶8.  Although both banks provide a positive outlook for 2009, 
there remains considerable uncertainty as to whether these 
expectations will prove accurate.  UBS and CreditSuisse 
assured clientele throughout 2008 that conditions would 
improve, major write-offs were completed, and that further 
capital infusions would not be necessary.  However, all of 
these assurances proved inaccurate. 
CARTER