Maria Bartiromo interviewed UBS Chairman Axel Weber on FOX News Channel’s Sunday Morning Futures. UBS Chairman Axel Weber talks the business climate right now, high frequency trading, regulation on the banks and sanctions against Russia over Ukraine. Below the full transcript of the interview can be found can be found (Axel Weber Interview)
MARIA BARTIROMO, FOX HOST: Thank you so much.
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MARIA: Thank you so much… and we are looking ahead to this upcoming week when the major banks will report earnings. Citi out on Monday. Bank Of America (NYSE:BAC) later in the week after mixed performances from JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) on Friday.
Joining me now, someone who has been leading a global bank out of the depths of that recession back in 2008, to today, where the business mix is totally different, with an emphasis on wealth management.
He is the chairman of UBS, the leading global wealth manager, uh, Mr. Axel Weber, also the former president of the German central bank, the Bundesbank.
Axel, it is great to have you on the program.
AXEL WEBER, CEO, USB: Maria, thanks for having me.
BARTIROMO: Thank you so much for joining us.
I want to get your take on some things, from the global economy to the new banking rules, uh, that we see, uh, being implemented and — and put in place right now to the business climate.
So let me open it up right there.
How would you characterize the business climate today?
WEBER: I think the business climate is improving, uh, definitely here in the United States. I do see the United States in a cyclical lead position of all the industrial countries.
So things are a lot better here than they are in Europe and a lot better than in many other established economies.
BARTIROMO: Of course, we still have Europe under pressure, Japan trying to stabilize and a lot of debate about Japan and its monetary policy.
Let me go to Europe for a moment.
How are things in Europe and what would you say about Mario Draghi and the European Central Bank’s approach to the recovery?
WEBER: So the first thing, I think Europe has come out of the recession. Uh, growth is stabilizing and it’s come back to positive territory. We expect this year just below 1 percent growth in Europe.
But 1 percent is not enough growth to create jobs.
And there’s very little the central bank can do to create jobs. The central bank has done the right thing, to stabilize the situation on financial markets and they’re now working with banks in the asset quality review to bring more transparency and credibility to the European financial system.
But what we need in Europe is reforms by governments to enhance long-term growth perspectives. And that’s not happened yet and it needs to happen.
BARTIROMO: Well, last week, we had Christine Lagarde on. I know you’re seeing her this upcoming week, uh, at the IMF meetings. And she was somewhat critical, basically saying the ECB needs to do more, Mario Draghi should probably lower interest rates further, do more stimulus, maybe something innovative like the Fed did here.
What’s your take?
Do we need to see further stimulus in the — in — in Europe?
WEBER: I think if the ECB were to lower rates, deposit rates slightly into negative territory or move the main refinancing rate further down, there’s not a lot that would happen as a result of that.
Uh, I think the ECB has done the right thing in providing a backup to the system, but what you — what the expectation in financial markets is is that the ECB would embark on a type of QE operation. I think you would have to see first a real disinflationary shock, much lower inflation. Actually, the whole projection of the ECB, the FEN chart, moving well into negative territory. And that’s not the case at the moment.
So at the moment, I would say inflation is Europe — in Europe is below target. It is sup optimally low. But I don’t see a lot of auction coming out, because any action they’re about to take is pretty controversial. And it’s unclear whether it will deliver on what the market expects from it.
BARTIROMO: And — and — and whether it be Europe or the U.S., most people will say, we’re looking at some improvement, but we should be at much better levels at this point in the cycle.
For example, in the U.S., we only saw, you know, under 200,000 new jobs created in the last month. People were looking for much better.
What is it going to take, do you think, to move the needle in the U.S.?
WEBER: I think in the U.S., you’re still suffering from the fact that the data that now come out, month to month comparison, are actually not giving you a great picture, because, uh, you had a very hard winter. It impacted on numbers over the wintertime.
As for coming out of winter, we’ll probably see some pay back from that. So there’s going to be distorted numbers coming out of winter.
I think the Fed will try and look through those monthly variations in numbers to get a medium to long-term perspective and remind you, the medium to a long-term perspective for the UBS is — is — for — for the U.S. is actually quite good.
Uh, I think we are — we are expecting, at the moment, a 3 percent growth in the U.S., actually, almost 3.5 percent next year, in my reading, because the shift in the energy balance, the fact that the U.S., on shale gas will become an exporter rather than an importer of energy will reindustrialize and help reindustrialize the United States.
So cyclically, they’re in a very good position, uh, in the United States. And you will see that in the coming — in the data, maybe not immediately¸ but as more medium-term data come out, you will see that.
BARTIROMO: I’m really glad you mentioned shale. This is sort of a game-changer to — to a lot of people, feeling like…
WEBER: It really is.
BARTIROMO: — this is really getting to be one of the low-hanging fruits in terms of creating jobs.
OK, I want to get to Japan and I want to get to China and the emerging markets in a moment.
But let me turn to UBS for a moment. Of course, you made the decision, and your colleagues at UBS, to emphasize wealth management and deemphasize things like trading or certainly fixed income trading, uh, and deemphasize a little on the investment bank. I — I recognize that you’ve got a very vibrant investment bank still.
But — but let me ask you about that. Is $2.5 trillion AUM overall at UBS, that’s — that’s the right number, correct?
BARTIROMO: $2.5 trillion.
WEBER: If you look at all the asset gathering business.
BARTIROMO: With all the asset gathering, exactly.
So what has happened as a result of this change that you’ve made?
What are you seeing from your clients today in an environment where we have real disruption in the stock market?
WEBER: Right. So clients are, again, gaining confidence in UBS. We’re seeing that in the net new money figures. Last year, we had about $58 billion net new money. That’s actually more than some of our competitors, number two, three and four together.
So UBS is growing strongly, again, back to its (INAUDIBLE) position it had on wealth management.
We’re the largest wealth manager, as you manage globally already, and we do get credit by many investor relations and by investors and by clients that we’re actually doing a good job on it.
So UBS’s core, 50 percent of our profitability, will come out of wealth management globally.
Only 30 to 40 — 30 — 20 to 30 percent is roughly retail and corporate business. And the investment bank will contribute around 20 percent to the overall profitability. That shows you that the bank has made a big change from actually allocating 60 percent of its capital to the investment bank to now, actually, only 20 to 30 percent. And we are putting at the core of what UBS is known for and is good at, namely wealth management globally.
And we’re the strongest bank in Switzerland, so my understanding always has been you cannot be a good and strong international bank if you’re not a dominant player and a good player in the whole market.
And so for us, the — the duality of being a global wealth management franchise and market leader in Switzerland, supported by an asset management business globally and supported by an investment bank is the right business mix that we want to pursue. And it’s paying off.
All of our businesses, in each division, has been profitable in every quarter last year and the investment bank had a return on equity that was around 31 percent last year.
So we did really well in a different set of market environments over the last year, which shows the robustness of our new business model in the investment bank. And very few other banks have a — a similar robustness to show for in the last difficult year.
BARTIROMO: You’re absolutely right. And a number of banks are following suit and emphasizing wealth management and trying to become, as one analyst said to me earlier, trying to pull a UBS, uh, trying to do what you’re — what you’re trying to do.
How do you get margins up in wealth management?
WEBER: Well, so one thing we need to understand is that as the banking business in general will be less profitable, one way to get profitability up is to actually be pretty stringent on cost cutting. So we need to get costs under control. And while it’s basically moving business out and focusing on what you’re good at and competing where you can actually be among the top three players, it is getting control of the cost.
And that takes a variety of, uh, as I mentioned, it basically means back office jobs need to be aligned with front office jobs. It means avoiding mistakes and avoiding penalties. It means changing the culture in the bank to a better culture. And it also means that we need to have, in particular, technology as an enabling factor in banks rather than looking at is as a cost factor only, because technology is going to be the key driver for successful banks in the future.
You’ve got to be on top of technology. It’s a major risk if you’re not. And we’re putting technology and improving on technology at the core of our cost driving programs.
BARTIROMO: Does that require big outlays, the technology?
You know, we’ve been talking about CAPEX a lot in terms of, uh, its impact on the economy.
Are you expecting to increase money toward CAPEX as a result of improving technology?
WEBER: It requires investment.
WEBER: Yes, it clearly requires investment and, you know, in wealth management, since it’s a people business, it also requires hiring people. We just hired 88 new advisers in the Asias. We’re one of the market leaders globally, but in Asia, we’re