the undisputed market leader. And there, really, since it’s a people business, you need technology and people. You need to focus on both.
BARTIROMO: Where are you in the cost cutting efforts?
I recognize you’re — you’re hiring in one area of the business, but in terms of the cost cuts, if you were in a baseball game, are we in the seventh inning, the ninth inning or the second inning?
WEBER: We’re on track.
BARTIROMO: Yes.
WEBER: But I would say, you know, we’re in the sixth inning. Uh, we still have further cost cuts ahead of us. We made some announcement of programs over the next two years and the transformation on the bank. So we’re delivering on those, but only when we’ve actually moved to the end point of that.
If you look at where the costs are coming down, first of all, you need to downsize the front office jobs, so the trading jobs. It’s only once you’ve done that, you can actually then start cutting on back office jobs. You cannot do it the other way around.
So what we’re trying to do is exit from non-core and legacy portfolios, wind down some of these trading activities and then basically move to sustained, long-term cost cutting.
BARTIROMO: Understood.
WEBER: It’s got to be that sequence.
BARTIROMO: Absolutely.
All right, let’s talk about regulation for a moment, Axel.
There’s been so many charges, I feel like there are charges constantly in this industry. And, you know, they are billed as one time charges, but it almost feels like this is the new normal.
Tell us about the regulatory changes that we have seen, more changes that were beginning to get implemented last week on the major banks. And they are different, because you’ve got regulators in Switzerland, you’ve got regulators in the US.
So how does this shake out?
What are the most onerous and — and how do you think the industry looks different as a result of regulation in the coming three to five years?
WEBER: So, basically, the whole new regulation for global systemic banks means that they have to carry an extra safety buffer on capital, on liquidity planning, on many areas.
In Switzerland, they’ve actually gone one step further. Uh, whilst the global international systematical banks have to hold 10 percent of common tangible equity, in Switzerland, it’s up to 19. The Swiss like alpine regions. And so on capital, they move to alpine regions. And therefore…
BARTIROMO: I guess so.
WEBER: — therefore, what we do is more than everyone else, we’ve moved now to roughly 13 percent of common tangible equity, which is a pretty high capital number. We’re improving our leverage ratio number. We’re improving our liquidity planning. But ultimately, this round of making banks safer is just the first round of what we’re seeing.
Actually, banks need to move a lot further. They need to move to be more resolvable. They’ve got to focus really on doing what they’re good at, when at — actually, at the core, they’ve got to go back to ask themselves, what are we all about?
And banks are about satisfying clients. So clients really have to be brought back into the picture.
I think banks should stop talking about product lines, for example, in the investment bank, and really ask themself, who are the clients we are serving?
And for us, we made a clear choice. It’s corporate clients and it’s wealth management clients. For those clients, the investment bank will deliver a holistic set of services that these clients need.
Outside that, I think we decided not to go in areas where we don’t serve our core client base. And I think that’s been a mind change from putting product and activities, like trading, at the core, to putting clients back in the core and saying, what can we do to service these clients?
And I think that will ultimately change the mind set, also, of traders, of people that deal with clients, and it will change the control environment.
BARTIROMO: And that’s a very good way to put it, really a great analysis. Look, I recognize that UBS is one of the best capitalized banks in the world right now. But the question always comes up, do you need more capital, because all of these stringent rules by the Fed and — and other regulators?
So where are you on capital?
Are you comfortable with the bank’s capital right now?
Or are you expecting an opportunity to raise capital?
WEBER: No, we have been raising capital by deleveraging the bank. Uh, we are continuing to improve our leverage ratio. Uh, I think the Swiss finish (ph), which will basically, for leverage ratio, require a 4.2 leverage ratio for a bank like us, instead of the international relevant 3 percent, again, it’s a Swiss add-on to the international standard. I expect that to gradually increase even, uh, the U.S. has just put out 5 percent leverage ratio for the major systemic banks. And I do expect that to become kind of the new norm for all the global banks, because it’s hard for me to perceive that if it becomes the standard in the U.S., you would see another constituency, the acceptance of a subpar standard on that.
So ultimately, whether we do move to 4.5 or 5, for us, as UBS, won’t make a big difference. But I think it’s a journey that really is now more or less clear on the horizon, because the U.S. has done it. We’re a bank that operates in the United States, so we want to fulfill those requirements that U.S. peers have to fulfill just out of self-interest that we wouldn’t be seen as weaker (INAUDIBLE) than our U.S. peers.
So that’s, in my view, now, set into the regulatory debate. And I think the FSB and the international constituency will have to go back and probably will revisit the 3 percent. Uh, for us, as a bank, it is important to really apply to the best standards.
BARTIROMO: So — so this is the new normal?
WEBER: It’s becoming the new normal. It won’t be immediately the new normal. If you look at banking regulation, actually, it’s going to be phased in through 2019. But as soon as a number like that is out and a major constituency adopts this, there’s pressure on everyone else to follow.
BARTIROMO: Absolutely.
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BARTIROMO: So much discussion on high frequency trading, OK. The last couple of weeks, you know, Michael Lewis out. You know, we had Larry Summers reacting to Michael Lewis’ comment that the stock market is rigged. And he said it’s obviously staggeringly exaggerated and in — and inaccurate.
But let me ask you about the ramifications of that book, because Goldman Sachs is saying, oh, we’re going to look at our dark pools. We are going to consider selling them.
Is there discussion within UBS to sell the dark pools?
WEBER: Well, look, I would echo what — what you just said from other banks. We’re all looking into these issues. The real issue is, can we make sure that in the business that we’re in, we’re conducting it in a way that is complying with regulations and doesn’t actually entail problems?
We don’t want to run business that entails problems. So we’ve got to look at this very carefully, do our own analysis and then take a decision.
We’re looking into it, but we’re not taking decisions yet.
BARTIROMO: And, of course, I would only anticipate what you would say if someone said to you, Axel Weber is the market (INAUDIBLE).
WEBER: Sorry?
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BARTIROMO: I mean if — if someone were to say to you, is the market rigged because of high frequency trading, the answer is?
WEBER: No. I mean the — the market rigged — look, the market is not performing to the same standards in each and every part. There is, I would say, an equity environment where it’s very clear you have an SEC set of rules, uh, it is very clear what it — what are the dos and what are the don’ts and there is a very strict coverage of that market. Compliance is enforced.
There are other market areas that are more opaque. They will be brought into a much more equity like environment over time, because we’re seeing problems on the trading floor in some of these areas.
So the standards of what used to be acceptable standards in the past, in opaque OTC markets, are going to be moving much more to an equity-like environment. It’s clearly something where there is a high public pressure to bring transparency and high standards to the trading floor in those areas. So that’s a process.
Now, that process needs to be done. And I think regulators need to embrace that process. If you ask regulators what about OTC markets, what are you going to do to stabilize them, they would have told you, we need a central counter party (ph) for clearing.
I think we need a lot more than a central counter party for clearing. If you ask regulators now, they feel that you need to enhance the trading, uh, culture, you need to really have a protocol on what is compliance, you need to have a series of do and don’ts and you need enforcements of these do and don’ts by risk control, by compliance and by audit.
And that’s where the market is moving.
BARTIROMO: Now, I — I ask you this, because I know you’ve thought about market structure a lot over your career. And unfortunately, market structure has not been looked at in a long time, certainly in the US. Uh, and that’s one of the issues here. And that’s why some people think, uh, that the market is not working for them.
But that’s — that — I just wanted to make sure you agreed with me and I totally agree with you on terms of market structure.
Let me ask you about litigation and the fines that have been so prevalent in the banking system, another new normal, unfortunately.
UBS is among the first to — to settle, uh, on tax evasion, back in 2009. You’re now looking at foreign exchange issues.
Where are we in this?
I mean should investors believe that there worst has been done — we’ve seen the worst?
Or are we still looking at regulation, litigation, fines and outlays of money as a result of, uh, you know, misguided individuals or — or — or poor behavior in some corners of the industry?
WEBER: We’re dealing very — and I can only speak for UBS. We’re dealing very proactively with all these issues. We have been endorsing the process of changing the bank and we are delivering on that promise.
So every area that we are looking at is going through with a very fine comb.
We have, uh, settled issues in the past. We’ve actually been cre — given credit. You might have seen that, from the European Commission…
BARTIROMO: Yes, absolutely.
WEBER: They waived a fine for UBS, largely because of our good collaboration with the authorities in (INAUDIBLE)…
BARTIROMO: Very early on.
WEBER: Very early on.
BARTIROMO: You see an issue, you attack it.
WEBER: Well, we basically go through all parts of the bank and try and remediate these issues, because the past is what it is. You know, the new team came in roughly two years ago, the new CEO and myself. We can’t change the past.
But we can try and improve on the past and change the bank. And that’s what we embark to do. Of course, if you
