Bloomberg Audio Studios, podcasts, radio news. Sergio Romari someone who I am so excited to speak with, in part because you wrote a Financial Times article that I thought was really interesting. You talked about the importance of protecting against protectionism, how to create a real antithetical environment for innovation, for some of the potential possibilities that you could see coming out of companies. You mentioned UniCredit possibly taking over Commerce Bank.
How much does that really stime the innovation to not allow that type of deal.
Well, first of all, I have to say that the article was meant to address, you know why, recognizing that maybe short term protection may sounds good, it creates a lot of collateral damages, and particularly when you go beyond goods and services, you look at how capital can move across different jurisdictions in a way that can create value and can help address many of the topics that are affecting our economies and our societies. Then you start to see really the cost. So in a sense, that's the
first issue. So capital is somehow affected by by this protectionism moves. But when you add on regulatory potential arbitrage and that may or may not be a consequence of protectionism or another form of protectionist Then you easily go into the debate of how to protect your financial markets, your local players, and then you know the issue of allowing or not allowing mergers between banks, not only in Europe, but across the globe becomes an issue.
It's amazing we're talking about affordable luxury hambags in the United States, but there is a similar regulatory crackdown on the tyepes of banks as well, and we're seeing it on both sides of the Atlantic. But what is the consequence for the banking system. Is it going to be lost capital, Is it going to be banks that don't perform as well? Is it going to be higher borrowing costs? What is the consequence of there not being a greater level of merging within the euroregion.
Well, first of all, when you look at even in the US, you have a lot of overcapacity, if I remember correctly, around five thousand banks. When you look at Europe, the market is very fragmented. You there is scope for creating economy of scale, diversification and the ability to diversification than to deploy more resources to two clients. The cost of that, at the end of the day, the cost
is paid by the economy by clients. I think, of course shareholders are suffering, but eventually cost of borrowing and the facility and the easiness of accessing credits is impaired. So allowing capital to freely move across jurisdictions creates less cost for the economy.
Is there a warning from the credit Swite saga? You've benefited frombout another side, your assets have increased, you delivered earnings that are performed expectations. There is a sense that banks that seem okay are suddenly not okay in a very fast money world. Do you worry that that's the case elsewhere?
No, I don't worry because if you look at the Credit Swiss situation was a very idiosyncratic topic that developed over the years. The business model was not sustainable, they didn't really have a great governance, and they benefited for too long from a regulatory concession that should not have been granted, or at least not for so long. And
that was a quite unique situation. If you look at what happened back in March twenty twenty three, banks large banks were actually safe haven were part of the solution in a sense in the US, but also with ubs in Europe, so big banks were solid, and it showed that well designed and regulators can avoid the repeat of the financial crisis. But if you go too far, then you create costs not only for share holders again also for clients when they it's going to cause more to borrow,
it's gonna slow down investments. And you know, so that's not the ideal situation.
There's a saying, and it's not mine. So you can't blame me or credit me. But the United States innovates and that Europe regulates, and that seems to be the way and the path of travel. And that's the reason why a lot of people expect the US to grow really significantly and less so in Europe. How much do you see that bifurcation continue with investor flows?
Don't worry, I'm not going to disagree on that. Okay, it's quite clear. You saw it in the last twenty years. Numbers talks clearly, and the underlying trends seems to go still in the same direction. There is a desire in Europe to change path. With the drug report with a lot of very comprehensive report analyzing the state of Europe, with a lot of ideas that unfortunately are going to
be quite difficult to implement. The reason is that you need twenty seven countries which quite different interests, to agree on a common goal that may result in some of them losing short term for the benefits of the long term benefit. And in this environment, it's very difficult to get voters to support any sacrifice, and so it's likely that you're going to continue to see the US outperforming Europe and particularly also maybe other parts of the world.
There's attension right now. The US election could potentially cause a lot of changes depending on who wins, and there's this fear that maybe people are not going to want to invest in the US bond market as much because of some potential policies, and may want even more to invest in the stock market. Do you see that with your clients in any way, shape or form. Do you see them preparing for the potential for some really big moves.
I think clients are preparing, you know, through diversification for discontinuity in the market. But you know, it's fair to say that when you look at government and central banks, is quite clear that they are diversifying away from the dollar, and one of the clear areas where you see this happening is when you look at gold prices hap this year significantly. It's a sign that there is probably much more than just private investors or institutional investors buying gold.
It's probably also central banks in different countries diversifying away from the dollar.
Is youbs buying more gold, Well, we have plenty of goals. Yes, you couldn't start filing it. I do wonder that whether people in general are hoping that the ECB is going to cut it much more aggressively than in the United States in the Federal Reserve, and are hopeful that actually that could be a tailwind in a real way.
That could happen. But remember that while it's fair to say that central banks did a pretty good job in achieving their goals to have a soft lending and managing high inflation without taking down inflations without creating our recessions, the stickiness also in the US of the inflation is still there. So inflation is still above the target rates,
and particularly when you look at core inflation. So it's a little bit early to predict that central banks can really go fast in taking down rates without creating potential collateral damage In this environment where geopolitics can create these continuity in supply chains in energy supplies, it's very dangerous to go too fast and then having to basically uh retreat, and and that at this at this stage, it would be very bad to see rates coming back because actions
have been taken to to aggressively on the rates front.
Sir Gimuri, thank you so much for your time. Sarah Geremadi there the CEO of UBS Group,