Finance
New Swiss bank laws could derail UBS’ challenge to Wall Street giants
Sergio Ermotti, CEO of Swiss banking giant UBS, during the group’s annual shareholders meeting in Zurich on May 2, 2013.
Fabrice Coffrini | Afp | Getty Images
Switzerland’s tough new banking regulations create a “lose-lose situation” for UBS and may limit its potential to challenge Wall Street giants, according to Beat Wittmann, partner at Zurich-based Porta Advisors.
In a 209-page plan published Wednesday, the Swiss government proposed 22 measures aimed at tightening its policing of banks deemed “too big to fail,” a year after authorities were forced to broker the emergency rescue of Credit Suisse by UBS.
The government-backed takeover was the biggest merger of two systemically important banks since the Global Financial Crisis.
At $1.7 trillion, the UBS balance sheet is now double the country’s annual GDP, prompting enhanced scrutiny of the protections surrounding the Swiss banking sector and the broader economy in the wake of the Credit Suisse collapse.
Speaking to CNBC’s “Squawk Box Europe” on Thursday, Wittmann said that the fall of Credit Suisse was “an entirely self-inflicted and predictable failure of government policy, central bank, regulator, and above all [of the] finance minister.”
“Then of course Credit Suisse had a failed, unsustainable business model and an incompetent leadership, and it was all indicated by an ever-falling share price and by the credit spreads throughout [20]22, [which was] completely ignored because there is no institutionalized know-how at the policymaker levels, really, to watch capital markets, which is essential in the case of the banking sector,” he added.
The Wednesday report floated giving additional powers to the Swiss Financial Market Supervisory Authority, applying capital surcharges and fortifying the financial position of subsidiaries — but stopped short of recommending a “blanket increase” in capital requirements.
Wittman suggested the report does nothing to assuage concerns about the ability of politicians and regulators to oversee banks while ensuring their global competitiveness, saying it “creates a lose-lose situation for Switzerland as a financial center and for UBS not to be able to develop its potential.”
He argued that regulatory reform should be prioritized over tightening the screws on the country’s largest banks, if UBS is to capitalize on its newfound scale and finally challenge the likes of Goldman Sachs, JPMorgan, Citigroup and Morgan Stanley — which have similarly sized balance sheets, but trade at s much higher valuation.
“It comes down to the regulatory level playing field. It’s about competences of course and then about the incentives and the regulatory framework, and the regulatory framework like capital requirements is a global level exercise,” Wittmann said.
“It cannot be that Switzerland or any other jurisdiction is imposing very, very different rules and levels there — that doesn’t make any sense, then you cannot really compete.”
In order for UBS to optimize its potential, Wittmann argued that the Swiss regulatory regime should come into line with that in Frankfurt, London and New York, but said that the Wednesday report showed “no will to engage in any relevant reforms” that would protect the Swiss economy and taxpayers, but enable UBS to “catch up to global players and U.S. valuations.”
“The track record of the policymakers in Switzerland is that we had three global systemically relevant banks, and we have now one left, and these cases were the direct result of insufficient regulation and the enforcement of the regulation,” he said.
“FINMA had all the legal backdrop, the instruments in place to address the situation but they didn’t apply it — that’s the point — and now we talk about fines, and that sounds like pennywise and pound foolish to me.”
A television station broadcasts the Federal Reserve’s interest-rate cut on the floor of the New York Stock Exchange (NYSE) in New York, US, on Wednesday, Dec. 18, 2024.
Michael Nagle | Bloomberg | Getty Images
Wall Street’s fear gauge — the VIX — spiked by the second biggest percentage in its history on Wednesday, after the Federal Reserve jolted the stock market by saying it would dial back its rate-cutting campaign.
The CBOE Volatility Index surged 74% to close at 27.62, up from around 15 earlier in the day. That surge is the second-greatest in history, behind a 115% leap to above the 37 handle back in February 2018 when there was a blow-up in funds tracking the volatility index.
Wednesday’s move comes after the central bank said it will likely lower interest rates just twice next year, down from the four cuts it projected back in September, alarming investors who wanted low rates to keep fueling the bull market. The Dow Jones Industrial Average tumbled by 1,100 points to its 10th straight loss.
Typically, a value greater than 20 in the VIX indicates a higher level of fear in the market. However, for most of this year, the VIX had been suppressed below that level, worrying investors who believed the market had gotten overly complacent.
The VIX is calculated based on the prices of put and call options on the S&P 500. A spike could indicate a rush by investors to purchase put options for protection in a decline.
CBOE Volatility Index, 5 days
Still, there have been one other significant surge in the VIX in 2024. The third-biggest surge in the VIX in history occurred in Aug. 5, 2024, when fears of a U.S. recession, and a major unwind in the yen carry trade, spurred a roughly 65% increase in the VIX to close above 38. On an intraday basis, the VIX briefly topped 65 that day.
On Thursday, the VIX was last floating just above the 20 handle, down more than 25% from the prior day.
Workers setting up the TuSimple booth for CES 2022 at the Las Vegas Convention Center on Jan. 3, 2022.
Alex Wong | Getty Images News | Getty Images
Embattled Chinese autonomous trucking company TuSimple has rebranded to CreateAI, focusing on video games and animation, the company announced Thursday.
The news comes as GM folded its Cruise robotaxi business this month, and the once-hot sector of self-driving startups has started to weed out stragglers. TuSimple, which straddled the U.S. and China markets, had its own challenges: concerns over vehicle safety, a $189 million settlement of a securities fraud lawsuit and delisting from the Nasdaq in February.
Now, just over two years after CEO Cheng Lu rejoined the company in the role after being pushed out, he expects the business can break even in 2026.
That’s thanks to a video game based on the hit martial arts novels by Jin Yong that’s slated to release an initial version that year, Cheng said. He anticipates “several hundred million” in revenue in 2027 when the full version is launched.
Before the delisting, TuSimple said it lost $500,000 in the first three quarters of 2023, and spent $164.4 million on research and development during that time.
Company co-founder Mo Chen has a “long history” with the Jin Yong family and started work in 2021 to develop an animated feature based on the stories, Cheng said.
The company claims its artificial intelligence capabilities in developing autonomous driving software give it a base from which to develop generative AI. That’s the next-level tech powering OpenAI’s ChatGPT, which generates human-like responses to user prompts.
Along with the CreateAI rebrand, the company debuted its first major AI model called Ruyi, an open-source model for visual work, available via the Hugging Face platform.
“It’s clear our shareholders see the value in this transformation and want to move forward in this direction,” Cheng said. “Our management team and Board of Directors have received overwhelming support from shareholders at the annual meeting.”
He said the company plans to increase headcount to around 500 next year, up from 300.
Cutting production costs by 70%
While still under the name TuSimple, the company in August announced a partnership with Shanghai Three Body Animation to develop the first animated feature film and video game based on the science fiction novel series “The Three-Body Problem.”
The company said at the time that it was launching a new business segment to develop generative AI applications for video games and animation.
CreateAI expects to lower the cost of top-tier, so-called triple A game production by 70% in the next five to six years, Cheng said. He declined to share whether the company was in talks with gaming giant Tencent.
When asked about the impact of U.S. restrictions, Cheng claimed there were no issues and said the company used a mix of China and non-China cloud computing providers.
The U.S. under the Biden administration has ramped up limits on Chinese businesses’ access to advanced semiconductors used to power generative AI.
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