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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Sergio Romari someone who

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Speaker 1: I am so excited to speak with, in part because

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Speaker 1: you wrote a Financial Times article that I thought was

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Speaker 1: really interesting. You talked about the importance of protecting against protectionism,

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Speaker 1: how to create a real antithetical environment for innovation, for

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Speaker 1: some of the potential possibilities that you could see coming

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Speaker 1: out of companies. You mentioned UniCredit possibly taking over Commerce Bank.

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Speaker 1: How much does that really stime the innovation to not

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Speaker 1: allow that type of deal.

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Speaker 2: Well, first of all, I have to say that the

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Speaker 2: article was meant to address, you know why, recognizing that

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Speaker 2: maybe short term protection may sounds good, it creates a

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Speaker 2: lot of collateral damages, and particularly when you go beyond

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Speaker 2: goods and services, you look at how capital can move

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Speaker 2: across different jurisdictions in a way that can create value

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Speaker 2: and can help address many of the topics that are

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Speaker 2: affecting our economies and our societies. Then you start to

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Speaker 2: see really the cost. So in a sense, that's the

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Speaker 2: first issue. So capital is somehow affected by by this

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Speaker 2: protectionism moves. But when you add on regulatory potential arbitrage

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Speaker 2: and that may or may not be a consequence of

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Speaker 2: protectionism or another form of protectionist Then you easily go

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Speaker 2: into the debate of how to protect your financial markets,

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Speaker 2: your local players, and then you know the issue of

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Speaker 2: allowing or not allowing mergers between banks, not only in Europe,

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Speaker 2: but across the globe becomes an issue.

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Speaker 1: It's amazing we're talking about affordable luxury hambags in the

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Speaker 1: United States, but there is a similar regulatory crackdown on

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Speaker 1: the tyepes of banks as well, and we're seeing it

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Speaker 1: on both sides of the Atlantic. But what is the

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Speaker 1: consequence for the banking system. Is it going to be

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Speaker 1: lost capital, Is it going to be banks that don't

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Speaker 1: perform as well? Is it going to be higher borrowing costs?

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Speaker 1: What is the consequence of there not being a greater

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Speaker 1: level of merging within the euroregion.

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Speaker 2: Well, first of all, when you look at even in

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Speaker 2: the US, you have a lot of overcapacity, if I

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Speaker 2: remember correctly, around five thousand banks. When you look at Europe,

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Speaker 2: the market is very fragmented. You there is scope for

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Speaker 2: creating economy of scale, diversification and the ability to diversification

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Speaker 2: than to deploy more resources to two clients. The cost

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Speaker 2: of that, at the end of the day, the cost

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Speaker 2: is paid by the economy by clients. I think, of

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Speaker 2: course shareholders are suffering, but eventually cost of borrowing and

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Speaker 2: the facility and the easiness of accessing credits is impaired.

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Speaker 2: So allowing capital to freely move across jurisdictions creates less

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Speaker 2: cost for the economy.

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Speaker 1: Is there a warning from the credit Swite saga? You've

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Speaker 1: benefited frombout another side, your assets have increased, you delivered

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Speaker 1: earnings that are performed expectations. There is a sense that

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Speaker 1: banks that seem okay are suddenly not okay in a

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Speaker 1: very fast money world. Do you worry that that's the

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Speaker 1: case elsewhere?

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Speaker 2: No, I don't worry because if you look at the

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Speaker 2: Credit Swiss situation was a very idiosyncratic topic that developed

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Speaker 2: over the years. The business model was not sustainable, they

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Speaker 2: didn't really have a great governance, and they benefited for

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Speaker 2: too long from a regulatory concession that should not have

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Speaker 2: been granted, or at least not for so long. And

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Speaker 2: that was a quite unique situation. If you look at

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Speaker 2: what happened back in March twenty twenty three, banks large

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Speaker 2: banks were actually safe haven were part of the solution

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Speaker 2: in a sense in the US, but also with ubs

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Speaker 2: in Europe, so big banks were solid, and it showed

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Speaker 2: that well designed and regulators can avoid the repeat of

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Speaker 2: the financial crisis. But if you go too far, then

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Speaker 2: you create costs not only for share holders again also

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Speaker 2: for clients when they it's going to cause more to borrow,

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Speaker 2: it's gonna slow down investments. And you know, so that's

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Speaker 2: not the ideal situation.

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Speaker 1: There's a saying, and it's not mine. So you can't

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Speaker 1: blame me or credit me. But the United States innovates

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Speaker 1: and that Europe regulates, and that seems to be the

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Speaker 1: way and the path of travel. And that's the reason

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Speaker 1: why a lot of people expect the US to grow

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Speaker 1: really significantly and less so in Europe. How much do

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Speaker 1: you see that bifurcation continue with investor flows?

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Speaker 2: Don't worry, I'm not going to disagree on that. Okay,

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Speaker 2: it's quite clear. You saw it in the last twenty years.

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Speaker 2: Numbers talks clearly, and the underlying trends seems to go

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Speaker 2: still in the same direction. There is a desire in

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Speaker 2: Europe to change path. With the drug report with a

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Speaker 2: lot of very comprehensive report analyzing the state of Europe,

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Speaker 2: with a lot of ideas that unfortunately are going to

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Speaker 2: be quite difficult to implement. The reason is that you

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Speaker 2: need twenty seven countries which quite different interests, to agree

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Speaker 2: on a common goal that may result in some of

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Speaker 2: them losing short term for the benefits of the long

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Speaker 2: term benefit. And in this environment, it's very difficult to

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Speaker 2: get voters to support any sacrifice, and so it's likely

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Speaker 2: that you're going to continue to see the US outperforming

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Speaker 2: Europe and particularly also maybe other parts of the world.

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Speaker 1: There's attension right now. The US election could potentially cause

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Speaker 1: a lot of changes depending on who wins, and there's

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Speaker 1: this fear that maybe people are not going to want

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Speaker 1: to invest in the US bond market as much because

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Speaker 1: of some potential policies, and may want even more to

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Speaker 1: invest in the stock market. Do you see that with

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Speaker 1: your clients in any way, shape or form. Do you

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Speaker 1: see them preparing for the potential for some really big moves.

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Speaker 2: I think clients are preparing, you know, through diversification for

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Speaker 2: discontinuity in the market. But you know, it's fair to

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Speaker 2: say that when you look at government and central banks,

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Speaker 2: is quite clear that they are diversifying away from the dollar,

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Speaker 2: and one of the clear areas where you see this

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Speaker 2: happening is when you look at gold prices hap this

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Speaker 2: year significantly. It's a sign that there is probably much

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Speaker 2: more than just private investors or institutional investors buying gold.

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Speaker 2: It's probably also central banks in different countries diversifying away

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Speaker 2: from the dollar.

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Speaker 1: Is youbs buying more gold, Well, we have plenty of goals. Yes,

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Speaker 1: you couldn't start filing it. I do wonder that whether

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Speaker 1: people in general are hoping that the ECB is going

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Speaker 1: to cut it much more aggressively than in the United

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Speaker 1: States in the Federal Reserve, and are hopeful that actually

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Speaker 1: that could be a tailwind in a real way.

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Speaker 2: That could happen. But remember that while it's fair to

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Speaker 2: say that central banks did a pretty good job in

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Speaker 2: achieving their goals to have a soft lending and managing

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Speaker 2: high inflation without taking down inflations without creating our recessions,

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Speaker 2: the stickiness also in the US of the inflation is

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Speaker 2: still there. So inflation is still above the target rates,

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Speaker 2: and particularly when you look at core inflation. So it's

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Speaker 2: a little bit early to predict that central banks can

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Speaker 2: really go fast in taking down rates without creating potential

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Speaker 2: collateral damage In this environment where geopolitics can create these

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Speaker 2: continuity in supply chains in energy supplies, it's very dangerous

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Speaker 2: to go too fast and then having to basically uh retreat,

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Speaker 2: and and that at this at this stage, it would

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Speaker 2: be very bad to see rates coming back because actions

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Speaker 2: have been taken to to aggressively on the rates front.

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Speaker 1: Sir Gimuri, thank you so much for your time. Sarah

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Speaker 1: Geremadi there the CEO of UBS Group,