g g p y g p g gforecasts asset growth projections job people assets target customers buyer seller securities pioneers electronics fully automated trading stock exchanges subsidiary Eurex SIof banks changes restructurings mergers globalisation regulatory changes International Monetary Fund IMF proximity diversification internationality banking system financial-mar mechanisms share of added value market leadership cooperation Singapore Marketing bond segment leading position Futures Indexprovider indices shareholders employees instituue employees concept of the universal bank banking course of business specialization institutions stability banking system supervision regulation monetary policy regulation denxchange Act legal framework special laws Money Laundering Law Consumer Credit Act state financial-market supervision Swiss Federal Banking Commission SFBC London banking confiizing body flexibility Luxemburg mechanism Corporate Governance directive securement independence financial analysis Switzerland Bankers Association top association players fiange buyer seller securities pioneers trading stock exchanges subsidiary Eurex SIS SegaIntersettle Telekurs efficiency system security opportunity trading flows technology comy government liberal principle stability movement of capital privacy banking location management private assets expertise multilingualism information technology investor servicconnection European Union OECD fight tax competition tax base crossing boundaries interest income successes in negotiations community of states linkage foreign liabilities abroa management brokerage commissions fiduciary commissions issuing business plac- ing power rankings balance sheet total major banks potential Global Players atmajor customers issues departments communication technology geographical focal points transfer stock-market slump future adjustments capacities trading volumpension funds life insurance SWX Gruppe securities access holding group of com- panies cooperations shareholdings manager STOXX provider share indices finances of opinion spot markets Nasdaq share derivatives Euro-Stoxx-50-Index inter- est derivatives Swiss Confederation Bobl Schatz systems Clearing transactiolisation strategy owner ability to act efficiency increase Euro Stoxx 600 Index cost side liquidity future Cross-Border-Settlement Euroclear Crest SIS Spread

ER stock-exchange companies minimum requirements according to the CO promotion rules Accounting-Standards per cent IAS US-GAAP guidelines annual reports conections point in time reason to exist values internalisation securities transac- tions in-house study owner pricing manufacturer Logitech roots financing inent quality dynamics giant employee development centre Silicon Valley CEO chair- man of the board constitution opening corporate development stages starting capsting regulations liberalization mood on the stock market world economy willing- ness to spend annual financial results quarterly losses foundation starting capcity starting capital activity financial sector creditor protection function pro- tection system protection trust protection reputation ground rules banking lege risk capital private bank decree manufacturing plants side effect Going-Public image familiarity credibility financial figures credit limits loan capital consee papers acquisitions USA visibility demand condition cul- tures professionalism access services factor attractive

ces asset manager structural reform of business trend to- ward concentration developments categories universace increase mass development commissions universal bank- ing customer relations understanding of the market creditrading income conditions profitability organizations gov- ernments challenges presence phenomenon financial ceninterest level sources of income past institutional phases impulses shortage risk tolerance large part reduced earntionskapazitäten Cross-Border-Settlement Euroclear Crest SIS Spreads sales prices fees research reality alliancvice redimensioning excess capacities salary level circum- stances welfare state negotiations discretion securititiatives investment products fund industry TIF Warrants- Segmentes Off-Exchange SMI security transaction costpartner Mirabaud association private bankers representa- tive Think-tank framework conditions board of trusteeesources international linkage foreign banks presence collapse Swissness democ- racy factors for success source of income relationships privacy interest taxa economist expansion salary correction bubble process of adaptation opportuni- ties banker financial companies Financier company sizes Back-office risk managemployment rate insurance experts salaries canton learning process remuneration cadre fixed salaries bonus gross domestic product GDP resources added valuentist savings mouse basis prototype laboratory place of higher education bonds quarterly results incentive structures accounting scandals company law key figehold standard of living requirements subsistence level study economic-research institution added value capitalization securities exchanges gross domestic prods categories universal banks earnings interest income Asset Manager Investment Banken asset management area corporate financing competitive environment conncial information SIS SegaInterSettle central securities depository off-exchange transactions securities safekeeping securities delivery SECOM-System settlemeneas of activity Assets mass survive units cross-subsidization private-customer business core business business models economies of scale Distributionskapazation leading association dialogue member banks branch office employees profes- sional code of conduct E-Banking range millions sums use Consulting bank officoperation marketing bond segment leading position futures Indexprovider indices shareholders licensees trend dialogue expertise delivery currency index commiserests pricing launch regulations working group securities transactions listing guidelines liberalization mood on the stock market global economy willingness tssociations economiesuisse investment companies real-estate companies country share of added value employees concept of the universal bank banking business course of businestoxx-Indizes index certificates index fund certificates sector investment strategies underweighting cyclical development Style-Indizes growth shares market depth information in private bankers representative Think-tank needs subsistence level study economic-research institute added value capitalization securities exchanges gross domestic product sys tendencies aspects factors centres forecasts asset growth projections job people assets target customers buyer seller securities pioneers electronics fully automated tradin

e Switzerland expansion Tokio density of banks changes restructurings mergers globalisation regulatory changes International Monetary Fund IMF proximity diversification internaries net functionality self-regulation mechanisms share of added value market leadership cooperation Singapore Marketing bond segment leading position Futures Indexprovider inc sector country share of added value employees concept of the universal bank banking course of business specialization institutions stability banking system supervision regulaelf-regulation Banking Act Stock Exchange Act legal framework special laws Money Laundering Law Consumer Credit Act state financial-market supervision Swiss Federal Banking Comtment industry association authorizing body flexibility Luxemburg mechanism Corporate Governance directive securement independence financial analysis Switzerland Bankers Assort price stability Swiss stock exchange buyer seller securities pioneers trading stock exchanges subsidiary Eurex SIS SegaIntersettle Telekurs efficiency system security oppore customers heart Europe continuity government liberal principle stability movement of capital privacy banking location management private assets expertise multilingualism infor growth rates activities strategy connection European Union OECD fight tax competition tax base crossing boundaries interest income successes in negotiations community of state

s investment income sources asset management brokerage commissions fiduciary commissions issuing business placing power rankings balance sheet total major banks potential Globag companies major customers issues departments communication technology geographical focal points transfer stock-market slump future adjustments capacities trading volume rison funds life insurance SWX Gruppe securities access holding group of companies cooperations shareholdings manager STOXX provider share indices financial futures exchange pri Nasdaq share derivatives Euro-Stoxx-50-Index interest derivatives Swiss Confederation Bobl Schatz systems Clearing transaction costs CBOT CME cost structure US partner growtncrease Euro Stoxx 600 Index cost side liquidity future Cross-Border-Settlement Euroclear Crest SIS Spreads sales prices fees Research reality alliance London Stock Exchang CO promotion rules Accounting-Standards per cent IAS US-GAAP guidelines annual reports conflicts of interests abroad fostering trust resegmentation attitude problem marketin-house study owner pricing manufacturer Logitech roots financing instrument IT market crisis New Economy computer industry domicile of holding company quarter millions Dollar neening corporate development stages starting capital francs issuer information cost-reducing measures spot market saver placement service balancing interests pricing launch regs foundation starting capital Hightech pioneers physicist computer scientist savings mouse basis prototype laboratory place of higher education manufacture main customers equipking legislation self-regulation Banking Act Stock Exchange Act legal framework special laws Money Laundering Law Consumer Credit Act state financial-market supervision federang margins appearance profit restructuring business model market conditions secondary listing Stock Options salary payments share options Boom talents disadvantage papers acts mix entrepreneurial spirit joy quality awareness prudence employees castles in the air sector indices asset manager structural reform of business trend toward concentratiotion globalisation pressure presence increase mass development commissions universal banking customer relations understanding of the market credit business market participant

mittendrin The magazine of the SWX Group

01_Overview ............................................................

02_Discussion of current topics ............................................

03_Developments in the banking landscape ..............................

04_ SWX Group interview .................................................

05_Corporate portrait of Logitech .........................................

The Swiss financial marketplace

04.03

Editorial 03

Dear Reader

As a topic of discussion, the Swiss financial marketplace ismore relevant than ever. Few economic sectors are as glob-ally connected and competitive as the banking and stock-ex-change business.

The SWX Group is at the centre of all this activity. It providesaccess to the international financial markets, serves as a mar-ketplace for transparent trading and ensures efficient capitalallocation within the Swiss economy. In cooperation withmany institutions, partners and group companies, it con-tributes to the effectiveness, competitiveness and functional-ity of the Swiss financial marketplace.

The Swiss financial marketplace is an important employerand a key sector of our country’s economy. With this maga-zine, the companies of the SWX Group hope to sketch outthe phenomenon of the Swiss financial marketplace for aninterested public, describe the tasks of a financial market-place, explain its functions, introduce some of its participantsand answer some topical questions.

The topics covered by the magazine, which are discussed byexperts on the Swiss financial marketplace, show the finan-cial marketplace from various points of view by revealing thecomplex interaction that takes place between the partici-pants and at the same time taking into account social, politi-cal, regulatory and economic aspects.

The magazine encompasses an overview of the Swiss finan-cial marketplace, the significance of the financial sector toSwitzerland and in an international context as well as devel-opments, adaptive processes and concentration in the land-scape of banking and the stock exchange, current issues, is-sues regarding competitiveness and questions regarding thefuture of the Swiss financial marketplace.

We would like to thank Prof. Rudolf Volkart and Dr TeodoroCocca of the University of Zurich’s Swiss Banking Institute;Prof. Niklaus Blattner, Member of the Governing Board ofthe Swiss National Bank; Beat Kappeler, publicist; PierreMirabaud, Partner at the private bank of Mirabaud & Cie;Daniel Borel, Chairman of the Board of Logitech; and jour-nalists Katharina Fehr and Roman Oberholzer of NZZ amSonntag, Urs Aeberli of Stocks and Erik Nolmans of Bilanzfor their contributions.

We are pleased to have the opportunity to present you witha copy of mittendrin magazine and would like to thank youfor your interest in the Swiss financial marketplace.

Dr Reto Francioni, Chairman of the Board of the SWX Group Jürg Spillmann, Head of the SWX Group Coordination Committee

Jürg Spillmann

Dr Reto Francioni

Copyright ©

mittendrin is the magazine of the companies belonging to the SWX Group. It is published in German, French and English.

Reprints subject to prior permission and acknowledgement of the source. The views published in this magazine may differ from those of the

SWX Group.

Contents 05

01_Page 06

An overview of the Swiss financial marketplaceProf. Rudolf Volkart and Dr Teodoro Cocca of the Universityof Zurich’s Swiss Banking Institute on the players in the finan-cial marketplace and the importance of the financial sector.

02_Page 11

Out the front gate and into the competitionProf. Niklaus Blattner, Member of the Governing Board of

the Swiss National Bank, and Beat Kappeler, publicist, on adaptation in the financial sector and the future of the

Swiss financial marketplace.

03_Page 18

Asset managers facing structural reformDevelopments and trends toward concentration in the Swissbanking landscape. By Pierre Mirabaud, Partner at the private bank of Mirabaud & Cie and President of the GenevaPrivate Bankers Association.

04_Page 22

“It’s like chess. You are waiting for the other player’s move”

Jürg Spillmann, Head of the SWX Group Coordination Committee and Deputy CEO of Eurex, and Dr Heinrich

Henckel, CEO of the SWX Swiss Exchange, on the competitiveness of the stock exchange and partnerships and

framework conditions for transparent trading.

05_Page 26

Logitech and the stock exchange: capital for mousesThe corporate development of Logitech from a startup to a globally active company. A portrait based on an interviewwith Daniel Borel, Chairman of the Board.

Overview

Printed works: Das Informationsverhalten der Financial Community in der Schweiz. Finanzierung, Kapital-

An overview of the Swissfinancial marketplaceToday, the world’s major financial marketplaces are Frankfurt, London, Luxembourg, New York, Singapore, Switzerland and Tokyo.

Switzerland developed into an important financial marketplace after the Second World War. Its success brought about rapid

expansion and a high density of banks in the 1970s and 1980s. In the past ten years, however, the Swiss financial marketplace has

experienced considerable change. The reason for this is, among other things, profound changes in the global financial markets,

restructurings (mergers, globalisation, etc.) and regulatory changes. The supporting pillars of the Swiss financial marketplace, which

the International Monetary Fund (IMF) recently described as highly developed, well diversified and internationally significant,

are its banking system, its financial-market infrastructure and the legal framework conditions.

Dr Teodoro Cocca and Prof. Rudolf Volkart

SWX Group mittendrin 07

markt und Banken, 2002, Victor Porak, Josef EUL Verlag, Lohmar Köln. Die Auswirkungen eines EU-Beitrittes

The banking systemIn the early 1990s, the structure of the Swiss banking systemchanged drastically in the face of takeovers, mergers and liq-uidations. During that decade, the number of employed per-sons dropped ten per cent, the number of institutions aboutforty per cent and the number of branch offices more thanthirty per cent. In spite of this process of concentration, thebanking sector has been able to maintain its important rolewithin the Swiss economy. With its ten-per-cent share in thegross domestic product, banks constitute an important sec-tor of the Swiss economy. Its contribution to added value isabout twice as high as the corresponding figures in Ger-many, France and the United States. The 369 banks that op-erate in Switzerland employ about 110,000 well-trained per-sons. If the number of employees working in industriesclosely related to the banking sector is included, the figurerises to no less than 140,000. The Swiss financial market-place is characterized by the concept of the universal bank.Universal banks pursue all types of banking business. This di-versification provides them with a more stable course ofbusiness than that experienced by specialized institutions. Ina sense, this contributes to the stability of the banking sys-tem as a whole.

Supervision, regulation and monetary policyThe tight regulation of the financial sector compared to thatof other industries is intended to protect creditors, func-tions, the system and trust. The express purpose of supervi-sion and regulation is to maintain the reputation and stand-ing of the financial marketplace. The ground rules of thebanking business are determined by legislation and self-reg-ulation. The Federal Banking Act and the Stock ExchangeAct provide the legal framework, which is complemented byadditional special laws (e.g., the Money Laundering Lawand the Consumer Credit Act). The government supervisesthe financial marketplace primarily through the Swiss Fed-eral Banking Commission (SFBC). Two key legal issues inconnection with the financial marketplace are money laun-dering and banking confidentiality. Switzerland has learnedfrom the past and stepped up its measures to protect thereputation of its financial marketplace. The resources setaside for the fight against money laundering meet the high-est international standards. In Switzerland, a significant por-tion of rules and regulations originate in a process of self-regulation. For example, the legislator might delegate theenactment of detailed rules and regulations to an industryassociation and subsequently act as the authorizing body.Recently, this mechanism, which guarantees great flexibility,was used in connection with the formulation of the Corpo-rate Governance Directive of the SWX Swiss Exchange and

the enactment of guidelines to guarantee the independenceof financial analysis by the Swiss Bankers Association, theleading association of the Swiss financial marketplace. An-other key player in financial regulation is the Swiss NationalBank (SNB), which devises Switzerland’s monetary and cur-rency policy as an independent central bank and is commit-ted to a favourable development of the economy. The SNB’sconstitutional tasks focus on the interests of Switzerland asa whole, the main objective being price stability.

Financial-market infrastructureSwitzerland has one of the world’s best financial-market in-frastructures. The key player in this regard is the SWX SwissExchange (the Swiss stock exchange), where buyers and sell-ers of securities meet. Under the Stock Exchange Act, it issubject to the supervision of the SFBC, and it is one of theworld’s pioneers in electronic, fully automated trading. The

“The 369 banks

in Switzerland

employ about

110,000 people.”

Overview

auf den Finanzplatz Schweiz, 2001, Christian Meier-Schatz, Peter Nobel, Robert Waldburger, Schulthess Poly-

SWX Swiss Exchange is one of the world’s ten biggest stockexchanges. Together with Deutsche Börse, the SWX SwissExchange operates the derivatives exchange Eurex as a sub-sidiary. SIS (SegaIntersettle) and Telekurs are also importantin connection with the financial-market infrastructure. An ef-ficient financial-market infrastructure is crucial in the increas-ingly interconnected world of finance: only stock exchangeswhich can process high transaction volumes cost-effectivelyand on highly reliable systems have any chance of attractingglobal trading flows. In spite of its outstanding technology,the SWX Swiss Exchange faces intense competition from theworld’s biggest stock exchanges. For the time being, virt-xhas averted the danger of the trade in Swiss blue chips mov-ing off to a trading platform not under Swiss control, butother problems remain. It is crucial to try and preserve theSWX Swiss Exchange; otherwise, jobs, tax revenue, specialistknowledge and financing opportunities for small andmedium-sized enterprises will be at stake.

Private bankingSwitzerland’s economic and political background is ideal forprivate banking, i.e. asset management for affluent privatecustomers. Its position in the heart of Europe, the govern-ment’s emphasis on continuity, its liberal principles and eco-nomic stability, the free movement of capital and the protec-tion of privacy in banking make Switzerland the ideal placefor managing private assets. Investors from all over theworld are drawn to Switzerland by the expertise of itsbankers, its multilingualism and its highly developed infor-mation technology. These conditions, combined with a tradi-tionally high-quality level of service, are what allowed Swissbanks to gain their customers’ trust. Many foreign privatecustomers have their assets invested at Swiss institutions;this is called the offshore business. With an estimated mar-ket share of 27 per cent (or CHF 2,000 billion), the Swiss fi-nancial marketplace holds an internationally top position inthis business. The behaviour of private-banking customers,however, is subject to change which can call this top posi-tion into question, and it must be addressed. Their invest-ment behaviour is shifting from old money to new money,from passive investment to active investment. Quality ofservice and investment performance are becoming more im-portant, banking secrecy and confidentiality are remainingso. Onshore private banking (private customers are increas-ingly investing their capital within their domicile) is becomingmore and more important compared to the offshore busi-ness. Higher growth rates can be achieved by caring for pri-vate customers within their domicile. Therefore, some Swissbanks are starting to branch out into new activities abroad.This strategy, however, is costly and involves high risk.

Ever since the Swiss sovereign’s rejection of the EEA agree-ments in 1992, Switzerland has been trying to maintain itslinks to the European financial marketplace. For various reg-ulatory and legal reasons, this has proved difficult. Certainmisunderstandings regarding banking confidentiality havearisen in connection with attacks by foreign countries andgroups of countries (EC, OECD) on Switzerland’s private-banking industry. The official reason for these attacks isgiven as the fight against tax evasion and “unfair competi-tion”, which interweaves political motives relating to compe-tition with the legitimate desire of individual countries tomaintain their tax base. A particular cause for concern is thecurrent debate on the taxation of crossborder interest in-come of private individuals domiciled in the EU; this is anarea where Switzerland is being put under great pressure. Inspite of successes in negotiations, Switzerland will remainunder strong pressure – in an international community thatis steadily growing closer, standing apart and yet wanting toparticipate is a difficult balancing act. As important as afavourable environment is for success in the private-customerbusiness, banks cannot make their future strategy depend-ent on banking confidentiality. Swiss banks must operate insuch a way that they can be successful even without it.

International linkagePreliminary conclusions regarding international linkage canbe drawn from the proportion of foreign assets to foreign li-abilities. Practically all banking groups have greater foreignassets than foreign liabilities. Swiss banks invest moremoney abroad than they receive from foreign customers.This is a remarkable and often overlooked fact. Cantonaland regional banks, agricultural credit cooperatives andbranches of foreign banks are exceptions. The balance ofpayments shows the importance of the Swiss banking sec-tor with regard to foreign trade. The balance of services andthe balance of earned income and investment income indi-cate the level of banking exports (just under half of the bal-ance is derived from banking commissions abroad). Themain sources of the banking sector’s surplus are brokeragecommissions, which are closely linked to asset manage-ment, fiduciary commissions and earnings from the issuingbusiness, which are based on banks’ above-average placingpower, which in turn is derived from asset management. Inthe rankings of the world’s largest banks (based on the bal-ance sheet total), Switzerland’s two major banks are highup on the list (UBS, 6th place; Credit Suisse Group, 13thplace). This shows the global potential of Switzerland’s twomajor banks. For a small country like Switzerland with apopulation of only seven million, being the home of two ofthe largest global players is a remarkable feat.

graphischer, Zurich. Internet: http://www.imf.org, www.bis.org, www.europa.eu.int, www.seco-admin.ch

SWX Group mittendrin 09

How is it possible that the Swiss financial marketplacewas able to acquire such importance? Its attractiveness isbased on the stability and solidity of its currency, which hasbeen communicated abroad in a convincing manner, and itslegal framework conditions. This, in combination with anexisting banking and insurance tradition, allowed Switzer-land to develop into an internationally powerful financialmarketplace featuring a wide range of products and ser-vices. The inflow of large amounts of capital were an incen-tive to develop innovative products and expertise. The virtu-ous circle that this created catapulted the Swiss financialmarketplace to the top within a few decades. Export-ori-ented companies that developed into multinationals (e.g.,Novartis, Nestlé and Roche) forced Swiss banks to developand offer a wide range of highly qualified services early on.

DangersIn the hotly contested financial market, the top positionmust be defended constantly. Capital, which is highly mo-

bile, can leave the financial market as quickly as it onceflowed into Switzerland in copious amounts. Other financialmarketplaces have caught up in terms of quality and eco-nomic and political stability. Framework conditions must beadapted with great speed to the needs of the financial mar-kets. An open and dynamic market must be maintained inorder to ensure Switzerland’s competitiveness. Switzerland’sstrong position in private banking is an ace that must beplayed. This must not, however, prevent one from recogniz-ing areas where Switzerland is not a leader. As far as invest-ment banking is concerned (in a sense the Formula One of

the financial sector), where new products are developed andbusiness with major clients is carried out (e.g., new issuesand mergers), the main hubs are New York and London.Even Switzerland’s major banks are relocating the units deal-ing with these areas to foreign countries. In spite of the pos-sibilities offered by IT and communication technology, theimportance of geographical focal points in these areas seemsto be increasing. Anyone not present in these financial cen-tres risks being left behind. This is why it is essential forSwitzerland that its major institutions should hold interna-tional top positions. Nothing else can ensure fast transfer ofknowledge into Switzerland. Inevitably, the close link be-tween the development of the global economy, the develop-ment of the stock exchange and the Swiss economy involvesvarious dangers. The stock-market slump of recent years willlead to painful adjustments of the financial industry’s capaci-ties in the near future. These adjustments will be particularlypainful for institutions immediately connected with thestock-market business (major banks, stock exchange banks,

investment banks) and the SWX Swiss Exchange because ofsinking trading volumes. Many small and medium-sizedbanks are required in the credit business. Here, professionaland successful risk management is a prerequisite for survival.

OutlookAn efficient market infrastructure and strong market partici-pants give the Swiss financial marketplace a promising start-ing position in an international context. The constantly shift-ing challenges presented must be accepted. One thingseems certain: the big winner in these changing times will be

“Switzerland has

one of the world’s

best financial-market

infrastructures.”

Overview

About the authors: Prof. Rudolf Volkart is the Director of theSwiss Banking Institute and ordinary professor for CorporateFinance at the University of Zurich. Dr Teodoro D. Cocca is anassistant professor at the Swiss Banking Institute and a lecturerin Banking at the University of Zurich. «

the customer. An electronic marketplace unlimited in timeand space will probably ensure that this will be the case. Wehave an excellent infrastructure, good framework conditionsand a strong position in the international competitive envi-ronment. The “Swiss” brand will be strong enough to de-fend Switzerland’s international position. A decisive factorwill be the continued development of the strengths of theSwiss financial marketplace. Sustained customer care andtop-flight teaching and research will remain key issues. A

strong financial marketplace is important for all of Switzer-land because it contributes to the creation of added valuefor customers, employees, shareholders and suppliers in coreand peripheral sectors. In addition, the non-financial sectorrequires a stable and effective financial system for the finan-cial aspects of its business activities. And last but not least,we as savers want to entrust our money to reliable institu-tions. A strong Switzerland needs a strong financial system –and vice versa.

“A crucial factor is the continued

development of the strengths of the

Swiss financial marketplace.”

Discussion of current topics 11

Printed works: Die Sorgfalt der Schweizer Banken im Lichte der Korruptionsprävention und -bekämpfung,

Out the front gate and into the competitionProf. Niklaus Blattner, Member of the Governing Board of the Swiss National Bank, and Beat Kappeler, publicist, on the future

of the Swiss financial marketplace

The equity markets are collapsing on all fronts, the econ-

omy is failing to recover and our borders are no safeguard

against corporate scandals. Under these gloomy condi-

tions, how do things stand for the Swiss financial market-

place?

Niklaus Blattner: Well. The Swiss financial marketplace iseconomically solid. Its financial services providers are efficient.The legal, economic, financial and monetary framework con-ditions are all favourable. These factors will help us in thecurrent situation. I often describe the Swiss financial market-place as the International Financial Centre of Switzerland in

order to emphasize that Switzerland faces global competi-tion from other international financial centres. And now inparticular we must ask ourselves if we have the resources toaccept the challenges facing the Swiss financial marketplace.Is the basic course that we are following correct? These areissues that the economy, the public authorities, politics andsociety must confront all the time. Yet I remain convincedthat we have an excellent financial marketplace.

What makes you so confident?

Blattner: As a location, Switzerland offers many advantages.

Discussion of current topics

2002, Mazumder, Sita, Paul Haupt AG, Berne. Plädoyer für eine Zukunft jenseits des Schablonendenkens,

It has stability and is founded on the rule of law. The partici-pants in the financial marketplace are intimately acquaintedwith the rules of the game, and the absence of major distur-bances such as WorldCom and Enron have no doubt bene-fited our image. Of course, Switzerland is not above all sus-picion, but we build on a tradition of solidity. In addition, ourbanks in particular have already done much of the ground-work necessary in connection with the structural change.Also, asset management is a unique source of income forSwiss banks.

Beat Kappeler: For me, this poses a number of questions.For example, what about the international linkage of our financial marketplace? The Swiss banking and financial mar-ketplace has strong international links. Many foreign banksare located in Switzerland, which gives rise to certain de-pendencies. And what about the structure of Swiss bank-ing? There are currently only two major Swiss banks withwindows open to the rest of the world. Such concentrationposes a certain risk. We cannot allow either of our majorbanks to collapse or become involved in a scandal or we willlose our significance.

What, in your opinion, are the advantages of the Swiss

financial marketplace?

Kappeler: It’s what I often describe as “swissness”, whichmeans our traditional virtues such as the stability that wasjust mentioned by Niklaus Blattner. But I would go one stepfurther and emphasize our reputation abroad as a demo-cratic country and tourist destination – a decent countrywhere you don’t get ripped off. Such “soft factors for suc-cess” are extremely important to us. They constitute a highlyspecific Swiss advantage over other financial marketplacesand should be a major help in successful asset management.

Both of you place your bets on asset management as a rich

source of income, but times have changed in this area as

well. How important is banking confidentiality for the fu-

ture of the Swiss financial marketplace?

Blattner: Banking confidentiality is certainly one of the fac-tors that have contributed to our success in the past. There isno doubt that it still is an attractive feature of financial ser-vices in Switzerland. But banking services must be convincingin all other respects as well. Protection of privacy alone is nota sufficient argument in order to sell asset management.

SWX Group mittendrin 13

2001, Beat Kappeler, Verlag Neue Zürcher Zeitung

“It would be better to admit a few foreign

experts to boards of directors

rather than the same 25 Swiss as always.”

Quality and costs have to be right too. Only a combinationof these factors makes success possible.

Is there a danger of banking confidentiality becoming

compromised in connection with the European Union’s

(EU’s) taxation of interest income?

Kappeler: We shouldn’t accept this at all. Intelligent defencemeasures have always incorporated a plan of attack. Weshould remember this in connection with banking confiden-tiality. Since the mid-1980s, Switzerland has made incredibleimprovements in terms of transparency and restrictions withregard to banking confidentiality – which has been limited tothe protection of private customers. Anything involvingmoney laundering or dictator’s monies has been excluded.Another thing is developments abroad. In Europe especially,but in other parts of the world as well, tax burdens have in-creased. The harmonization measures of the EU have doneaway with political competition, so to speak, which has led toa cartel of politicians which, instead of changing its priorities,squeezes more taxes out of the population. In such a world,Switzerland and the banks – and politicians as well – shouldaggressively communicate their unwillingness to participate.We should continue to uphold traditional liberal ideas such asprotection of the individual.

Blattner: The events to date have shown Switzerland to befairly successful at defending itself against countries of theEU. But the debate will continue. In my opinion, it is essen-tial that we protect our national interests and that the FederalCouncil protects Switzerland’s advantages. But this is onlyone side of the coin. The other side is that we must enternew worlds again and again. The attractiveness of Swiss fi-nancial products will only remain high for as long as they arecontinually renewed. I am completely for defending bankingconfidentiality against attempts to compromise it. But defen-sive action is not enough. With determined and intelligentpolitics, the Federal Council and Swiss politics can secureSwitzerland’s back gate, but Swiss financial services providersshould not therefore consider their position secure. Instead,they should rush out the front gate to face the ever fiercercompetition

Well said, but the competition is not asleep. A number

of EU countries are granting tax amnesties in order to

redirect the money flows.

Blattner: The longer banking confidentiality is maintainedand the more tax benefits this provides for foreign investors,the greater the de facto tax competition we trigger and themore likely it is that foreign countries will react. Taxamnesties are a form of competition. If we wish to face the

tax competition, we must be fit. If we are not fit, we will bethe victims of our own walls of defence. The effects of theTremonti amnesty on the financial marketplace of Ticinoshow that it cannot be taken for granted that everything willrun smoothly. A considerable share of the assets that weremanaged in Ticino has been removed to Italy, which is hardlysurprising. The competitiveness of the Swiss financial mar-ketplace has yet to pass a demanding test: it remains to beseen how much of the assets disclosed to the Italian tax au-thorities will be returned to Switzerland to be managed hereafter the amnesty.

But, as the financial figures show, far from all Swiss insti-

tutions are in good enough shape. What are the mistakes

that banks have made in the past?

Blattner: In asset management in particular, grave mistakeshave been made in the past few years. Even the banksthemselves admit this. As an economist, you become suspi-cious when, for years, a certain business provides high re-turns and yet the risks remain low. There was a seemingly

natural expansion of banks into asset management. Moreand more of them started to develop this business, and in-stitutions that were already in it argued that they had to in-vest more and more into it for it to remain profitable. Toomany people were hired and given excessive salaries, and

Beat Kappeler

Discussion of current topics

Internet: http://web.azekcfpi.ch

new, international markets were penetrated. All this inflatedbanks’ costs; a correction was overdue. And of course thefact that the speculative bubble on the stock markets burstdidn’t help matters.

The financial sector is in the process of adapting to the

changes. Where do you think we stand: at the beginning –

or already at the end?

Blattner: Such adaptive processes are never over, becausenew challenges keep presenting themselves to us. Take thetax amnesties that are currently being discussed in various Eu-ropean countries. We must keep adapting to such new situa-tions.

Kappeler: This adaptive process, however, also offers oppor-tunities. Consider, for example, bankers who have beenmade redundant and founded their own small financial com-panies. Again and again, such developments can lead to

new forms of asset management. With this in view, I con-sider it a tragedy that the Ebner group in effect virtually col-lapsed. Mr Ebner must be credited with breaking up the im-passive and cooperative world of banking.

Blattner: I would like to add something. The Swiss financialindustry has other problems that are not directly related toasset management. In my opinion, the classic bank modelthat is vertically and horizontally integrated has a limited fu-ture in the long term. For many later-generation institutions,the front office will become a dominating factor, but theywill require significantly smaller branches. Many back-officetasks related to product development and risk management

will be carried out by independent specialized financial ser-vices providers. This is what I imagine future models to looklike. Accordingly, the structure of the Swiss financial mar-ketplace will change fundamentally. We will have majorbanks that will still be able to afford the entire operationalinfrastructure. A great number of small banks will survive aswell, but they will operate according to business modelsthat will be completely different from today’s.

You have mentioned the industry’s major players and its

small players. But what will happen to the many medium-

sized institutions – to private banks, for example?

Blattner: They are in a particularly tricky situation. I thinkthat the medium-sized banks will have to restructure andreposition themselves. Many of them will probably considerlinking up with national, maybe even international part-ners, as has been done by Bank Sarasin.

Kappeler: It should be mentioned, however, that themedium-sized banks do have the strength to maintainbranches abroad. This is where I see opportunities for them:in acquiring foreign monies. They may find it hard, however,to remain competitive in the increasingly international com-petitive environment for top experts in the financial industry.A key factor in whether or not a given bank can survivethese changes is the extent to which it can remain innova-tive. In IT and processing in particular, they must be amongthe world leaders.

What effect will such structural changes have on job

numbers?

Kappeler: Let me give you an example. The canton of Zugnow has the highest unemployment rate of German-speak-ing Switzerland. This takes some getting used to. Earlier re-structurings have shown that it is hard for banking and in-surance experts who have been made redundant to findnew jobs, let alone new jobs that offer the salaries they are

“The big cases like WorldCom and Enron were not the result of weak regulatory efforts but of fraud, pure and simple.”

Beat Kappeler

The publicist Beat Kappeler, 57, has made a name for himself with a wide public with his comprehensible and accurate articles on

economic connections. After his social studies in Geneva and Berlin, he worked as a freelance financial journalist, then he worked for

fifteen years as the secretary of the Swiss Confederation of Trade Unions, where he was mainly concerned with economic policy.

From 1996 through 2000, Mr Kappeler taught social politics at the Institut de hautes études en administration publique (IDHEAP) in

Lausanne. In 1999, he was awarded an honorary doctorate by the University of Basel for his publicistic contributions to current eco-

nomic and social-political issues. Since 1997, he has been a member of the Swiss Federal Communications Commission (ComCom).

Mr Kappeler currently works as an editor and columnist for NZZ am Sonntag.

SWX Group mittendrin 15

web.sfaa.ch

Gabriele Meier, Cornelia Mustermann, H.P. Mustermeier

accustomed to. I think that, in future, people will have todistribute their income across their entire careers with all theups and downs associated with them. The constant un-steadiness of the job market will probably become perma-nent. I think this is a learning process that Switzerland stillneeds to come to terms with.

Do you share this view?

Blattner: Whether or not the job situation on the Swiss finan-cial marketplace becomes more tolerable remains to be seen. Until now, we have had a mixed form of remuneration.Cadre members received fixed salaries and, in addition,bonuses that sometimes were unbelievable. This combinationwas special and will probably not be viable in the future. Iagree with Beat Kappeler that, in future, employees in the fi-nancial industry will have to take greater care in planning fortheir retirement. Presumably, not everyone is presently awareof this. The effects of this learning process may be difficult tocope with.

Do you expect the banks to generate a smaller share of

the gross domestic product (GDP) in the future?

Blattner: Well, that’s always relative to the other sectors. Thisyear, the banks will barely, if at all, maintain their 11% shareof the GDP. But we should not lose sight of the fact that theSwiss financial marketplace is largely determined by just twogroups. And for these, Switzerland is only one of their im-portant markets. Accordingly, an essential question is whatSwitzerland’s role will be in their future plans. If the majorbanks conclude that their growth rates can mainly beachieved in business abroad, this will have an effect on theadded value of all of Switzerland.

Kappeler: Rather than the Swiss financial marketplace be-longing to us Swiss, it is dominated by a very few groups.There is a reason for the saying that, on the global market, itis not countries that compete against each other, but com-panies. This is particularly true in banking. Of course thechain of added value extends from banks to lawyers, hotels,real estate and luxury stores, which is why it is wrong alwaysto demonise the centres in Zurich and Geneva.

Beat Kappeler

Discussion of current topics

www.swissplus.ch

Everywhere, you hear the catchphrase “corporate gover-

nance”. How can investors’ trust be regained?

Blattner: Compared to the United States, we are in a goodposition inasmuch as we have not, to the same extent, usedoptions to raise the incentive so much that people are willingto do anything for good quarterly results. This is a questionof incentive structures, which, in Switzerland, overall havenot been distorted to the same extent as on the other sideof the Atlantic. I would also like to mention that trust, or“swissness”, is based precisely on the quality of the regula-tions that we have introduced to our domestic financial mar-ketplace. It will remain important, however, to strike theright balance between competitiveness and regulation. Upto now, we have succeeded fairly well.

Kappeler: The big cases like WorldCom and Enron were notthe result of weak regulatory efforts but of fraud, pure andsimple. One is never completely immune to such things, ashas been shown by cases of falsified balance sheets at

Swissair and Jomed, which were discovered in Switzerland.The authorities must pursue such acts with great resolve.Appropriate criminal and company laws are already in place.There is no need for a thousand new rules.

Question: are the existing rules and regulations strict

enough?

Blattner: The market itself severely punishes companieswhose corporate governance has failed. Their market valuedrops to zero, as has been shown by a number of cases. Ofcourse, the question at that point is if it is not already toolate for investors, because they are the ones who suffer thedamage. But I think that, in boardrooms across Switzerland,a rethinking has set in with regard to corporate governance.It is absolutely necessary for new standards of conduct to be adopted. Among other things, various key persons havesuddenly realized that failure may lead to a responsibilitylawsuit.

Kappeler: In Switzerland, an attitude is still prevalent that isvery hard to abolish with regulatory measures: excessivetrustfulness and a desire for harmony in the boardrooms. As

Prof. Niklaus Blattner

“The classic bank model has a limited future.”

far as I can judge, it is still considered almost an insult to thehonour of the top management to be asked by a member ofthe board of directors for information in writing, internaldocuments or how much it earns. In Switzerland, such ques-tions and further inquiries, though crucial, are much toorare. I also find it questionable when the same managersand board members hold converse positions in the govern-ing bodies of two separate companies. It would be better toadmit a few foreign experts to boards of directors ratherthan the same 25 Swiss as always.

To sum up, what recipes do you have for the Swiss finan-

cial marketplace of the future?

Blattner: We at the SNB try to help the Swiss financial mar-ketplace in various ways. We fight for price stability and asolid economic development in our country and are preparedto face any disturbances that may arise. The key factor formacroeconomic success is stability, which leads to pre-dictability, which in turn leads to trust, without which itwould be impossible to conduct any financial business.

Kappeler: I have an optimistic view of the future of the Swissfinancial marketplace. We should stop our constant moaningabout how isolated Switzerland is. The contrary is true:Switzerland is globally oriented – not least thanks to the pen-etration of new markets made possible by the WTO. We havehigh flexibility and independence and our own currency. Thiswill make us winners in the economic structures of tomorrowand beyond. And last but not least, we should cultivate agood relationship with the empire.

Interview: Roman Oberholzer and Katharina Fehr, NZZ am Sonntag «

SWX Group mittendrin 17

www.sec.gov

Prof. Niklaus Blattner

Prof. Niklaus Blattner, 59, is one of the most knowledgeable experts on the Swiss financial marketplace. Since 1 January 2001, he

has been the head of the Department II of the Swiss National Bank (SNB) as a Member of its Governing Board. In recent years, his

numerous scientific publications have focused on issues surrounding the job market, the competitiveness of international financial

marketplaces and banking and financial-market regulation. After obtaining his doctorate and habilitation at the University of

Basel, Mr Blattner transferred from his position as the head of the economic department to the Federal Office for Industry, Com-

merce and Labour. From 1998 through 2000, he was a Delegate of the Board and Chairman of the Executive Board of the Swiss

Bankers Association. Since 1979, Mr Blattner has also been a visiting professor of macroeconomics at the University of Basel. For

many years, he participated in the work of the Swiss Federal Commission for Economic Policy of the Department of Economic

Affairs in Berne.

Developments in the banking landscape

Printed works: Vermögensverwaltung 2003, 2003, Rainer Konrad, Frankfurter Allgemeine Zeitung, Frankfurt.

Asset managers facingstructural reformInternationally, the Swiss financial marketplace holds a leading position in asset management for institutions and private individuals.Pierre Mirabaud, Partner at the private bank of Mirabaud & Cie, on developments and trends toward concentration.

SWX Group mittendrin 19

Die Spielregeln des Private Banking in der Schweiz, M. Roth, Verlag Finanz und Wirtschaft AG, Zurich

Banks operating in Europe fall into one of two categories:universal banks, which derive a comparatively large amountof their income from interest, and asset managers and in-vestment banks, which for the most part operate in assetmanagement and corporate financing. This competitive en-vironment has changed in that a distinct process of concen-tration can be observed in connection with asset managersand investment banks. Due to the globalisation of the fi-nancial markets, the pressure to establish a global presenceand to increase the critical mass is enormous, especially ininvestment banking. Among other things, this developmenthas resulted in a large part of today’s global commissionsbeing divided up among five or six investment banks. Uni-versal banking, on the other hand, is still local in nature andis still offered by local banks, who have long-standing rela-tionships with customers and in-depth knowledge of theirmarkets. The major market participants consider the creditbusiness only marginally attractive, because it features slowgrowth and yet involves high risk and relatively largeamounts of own funds.

The banking landscape as a reflection of the financialmarketplaceInternationally, the Swiss financial marketplace holds a lead-ing position in asset management for institutions and pri-vate individuals. Not only does asset management for insti-tutions provide substantial assets from pension funds andinsurance companies; also, the assets of private investors inSwitzerland is far above the European average. This is re-flected in Switzerland’s market structure as well as in thecomposition of Swiss banks’ income, which largely derivesfrom commissions and trading. Furthermore, the conditionsin Switzerland for business with affluent private customersare rather attractive compared to those of other countries.Profitability is above average, and asset managers based inSwitzerland enjoy larger margins than asset managersbased abroad. Also, the stability and visibility of the earn-ings is exemplary, whereas the risks are low. It is hardly sur-prising, therefore, that many foreign competitors want togain a foothold in the lucrative asset-management businessor that the position and the values of the Swiss financialmarketplace are being called into question by various inter-national organizations and foreign governments.

Challenges for asset management for private individualsThe Swiss banking landscape is marked by the two majorbanks that are global leaders and the widespread presenceof private banks – a phenomenon that is not encounteredin the same pronounced form in other European financial

“Whereas there have been restructuringprocesses in universal banking and in international investment banking before,this time, asset managers, who are of keyimportance to the Swiss financial market-place, are concerned.”

centres. Private banks are mainly engaged in managing pri-vate assets, most of which comes from abroad (so-calledoffshore assets). Switzerland’s main financial centres areZurich, Geneva and Lugano; for the purposes of privatebanking, Geneva and Lugano enjoy the advantage of beinggeographically close to France and Italy respectively. But pri-vate banks, as well as the two majors, which generate aconsiderable proportion of their total earnings – over fiftyper cent – from asset management, are facing a structuralreform of the market. The attractiveness of the Swiss finan-cial marketplace and other offshore centres is at risk frominternational pressure against banking confidentiality, theefforts of neighbouring countries to repatriate those assetsof their citizens that are invested abroad through taxamnesties and the trend toward harmonizing taxes andrules and regulations throughout Europe. Forecasts predictthat, in the coming years, offshore centres will experienceslower asset growth than onshore markets. Whereas in1996 about a third of the world’s private assets were man-aged in offshore centres, current predictions state that thefigure will only be twenty per cent by 2005. It might beworth noting at this point that, worldwide, an estimated fif-teen million people have assets to the value of more thanone million US dollars and are therefore considered bybanks to belong to the target group for private banking.

Professional investors can’t helpInevitably, the weakness of the stock markets of the pasttwo years and more has repercussions for Swiss banks. Foryears, they benefited from the trend toward investing in se-curities, which supplanted the previously far more wide-spread investment in real estate. The development of shareprices in the past two years has reduced customers’ assetsconsiderably and diminished Swiss banks’ key source of in-come: assets under management. Investors’ trust has been

undermined even further by financial scandals in Switzer-land and abroad, and the current geopolitical situation is farfrom conducive to the hoped-for cyclical recovery. As a re-sult, many investors have turned their backs on the stockmarket or are left with losing positions which will hardly beliquidated in the near future. Due to the very low interest-

Developments in the banking landscape

Private Banking im Zeitalter des Internet, 2001, Stephan Matti, Paul Haupt AG, Berne

rate levels, not even liquid fixed-income investments are anattractive alternative. As a result of this situation, importantliquidity is being withdrawn from the stock market, andbanks’ sources of income are drying up even more due tolower transaction-based commissions. In comparable situa-tions in the past, major institutional investors were able toprovide the markets with the necessary stimulation. Now,unfortunately, some of the large pension funds and insur-ance companies are also in critical situations. The risk ofpension funds experiencing shortages and the noticeably re-duced assets of insurance companies have significantly re-duced the risk tolerance of these important market partici-pants.

The private-banking industry has already experiencedmost of its consolidations Whereas there have been restructuring processes in univer-sal banking and in international investment banking be-fore, this time the reduced earnings mean that asset man-agers, who are of key importance to the Swiss financialmarketplace, are concerned. The majority of asset man-

agers are being forced to rethink their strategies. In thepast, many of them tried to expand their fields of activityand break into institutional asset management and local in-vestment banking or related areas. In many cases, however,they failed to achieve critical mass in these segments, andthe survival of these units was only possible through cross-subsidization from the traditional private-customer busi-ness. The pronounced decline in earnings and profits fromthe banks’ core business, however, will mean that onlyclearly focused and profitable banks will remain competi-tive. The shakeout should result in two new business mod-els: on the one hand, major vendors who benefit fromeconomies of scale, a wide range of products and consider-able distribution capacities; on the other, pure playerswhose strength lies in intense performance-oriented andcustomer-specific advisory services. The shakeout may leadto more consolidations among banks. It will certainly leadto an adjustment of their capacities and the abandonmentof some areas of business. Banks will hardly be able toavoid eliminating excess staff and adjusting salary levels tothe new circumstances.

Pierre Mirabaud

Pierre Mirabaud, a Partner at the private bank Mirabaud & Cie, domiciled in Geneva, and President of the Geneva Private Bankers Association, is a

key representative of the interests of Switzerland’s private banks and the financial marketplace of Geneva. The Geneva Private Bankers Association

(groupement des banquiers privés genevois) serves as a think tank for its members and labours for favourable framework conditions for the Swiss

financial marketplace. As the Vice President of the Board of Trustees of Avenir Suisse, Pierre Mirabaud is also committed to Switzerland’s social-

political and economic-political development.

SWX Group mittendrin 21

Internet: www.swissprivatebankers.com, www.ecb.int, www.vsv-asg.ch, www.imf.org, www.swissbanking.org

The Swiss financial marketplace is closely linked to thewelfare stateThe most recent bilateral negotiations with the EU haveshown the citizens of Switzerland how strongly embeddedthe Swiss financial marketplace is internationally and howclosely linked it is to the welfare state and the economy. Itwill be a challenge for Swiss politics and the financial indus-try’s regulatory authorities to protect the values associatedwith the Swiss financial marketplace: stability, discretion, se-curity, privacy and service quality. Commitment to trans-parency for all market participants is a key factor. Theprompt issue of various guidelines and recommendations,e.g., the Swiss Code of Best Practice for Corporate Gover-nance, the Swiss Bankers Association’s guidelines to guaran-tee the independence of financial analysis and the introduc-tion of internationally recognized accounting standards inthe main segment of the SWX Swiss Exchange, have re-es-tablished investors’ trust in the financial system.

In addition to regulatory measures, initiatives to increasethe attractiveness of investment products to investors are ofparticular importance. On the one hand, the attractivenessof the entire fund industry is expected to be enhanced byTransparency in the Fund Market (TIF), the initiative of theSWX Swiss Exchange, and the listing of Exchange TradedFunds; on the other hand, the launch of the warrant seg-ment was an important step in giving private investors ac-cess to this largely illiquid segment where trades are carriedout off-exchange by specialized banks. If Swiss banks are tosurvive against their competitors, it is of key importancethat the SWX Group should offer a professional range ofproducts that meets international requirements. One impor-tant measure in this regard was to increase the liquidity ofSMI securities on the virt-x platform.

Transaction costs for banks and investors increase notice-ably if the liquidity and market depth of a given share are in-

adequate or fragmented across various stock exchanges. Thehome markets of blue chips in Europe should continue toplay a key role in equity trading – in spite of initiatives seek-ing to create a common European financial market. For in-vestors, information from home markets, as well as their pe-culiarities, are important criteria for making investment deci-sions. The variety of Europe’s countries of origin is a con-tributing factor to the great diversity of its corporate cul-tures. The value of information from home stock exchangesexceeds the savings potential that might be offered by acommon centralized financial market. It is therefore to be ex-pected that, in the foreseeable future, the European stock-exchange environment will remain spread across a numberof local stock exchanges. In this regard as in others others, itwas beneficial to the Swiss financial marketplace and Swissbanks to consolidate most of the trading in SMI securities ona domestic platform and thereby to foster customer loyalty.

Pierre Mirabaud, partner at the private bank Mirabaud & Cie «

“Banks will hardly be able to avoid eliminating excess staffand adjusting salary levels to the new circumstances.”

SWX Group interview

“It’s like chess. You arewaiting for the otherplayer’s move”2003 will bring a new corporate structure and segmentation to SWX. Jürg Spillmann, Head of the SWX Group Coordination Committee and DeputyCEO of Eurex, and Dr Heinrich Henckel, CEO of the SWX Swiss Exchange,explain why.

25.3 percent of Swiss people invest in equities or equityfunds. What function does SWX Swiss Exchange, as thestock exchange is now called, perform for the other threequarters of the Swiss population?Heinrich Henckel: The stock exchange serves a large num-ber of investors as a marketplace for fair and transparenttrading in widely varied capital investment vehicles, be theyshares or bonds, investment funds, derivatives or other prod-ucts. The stock exchange thus takes on an overarching sig-nificance for the Swiss economy, because it ensures the effi-cient allocation of capital. And that, ultimately, is to thegood of us all.

Jürg Spillmann: A large proportion of the population isprobably not even aware that they are investing indirectly inshares, through the AHV state pension scheme, their occu-pational or personal pension funds, or their life insurancepolicy, for example.

How will the reorganisation of SWX Group as of the begin-ning of 2003 benefit institutional and private investors? Spillmann: We do not want to offer Swiss securities alone– we also want to offer efficient, cost-effective access to theinternational financial markets. The new structure, which islike a group of companies with a holding company, will en-able us to enter into new cross-border alliances and to man-age our existing shareholdings better. In fact, we alreadymaintain international alliances such as Eurex – the world’slargest futures market – and STOXX, a joint venture formedfive years ago that has since become Europe’s leadingprovider of equity indices.

It sometimes seems as though Deutsche Börse and SWXGroup are pursing different strategic priorities. How longcan Eurex continue to operate if its two joint venture part-ners have diverging interests?Spillmann: Eurex was created five years ago from themerger of the Swiss Soffex and Germany’s Deutsche Ter-minbörse, and it is still the only functioning truly cross-bor-der stock exchange alliance. Even in last year’s difficult cli-mate, Eurex trading volumes broke record after record andleft its competitors trailing behind. That’s impressive evi-dence that the Eurex model is working!

Of course, there are occasional differences of opinion atEurex like there are in every partnership, but Deutsche Börse’s

Printed works: Banken- und Börsenaufsicht, 2000, Winzeler, Christoph, Helbing & Lichtenhahn Verlag AG. Alternative

SWX Group mittendrin 23

interests and our own are essentially the same. Where spotmarkets are concerned, exchanges are still very much limitedterritorially, so it is not SWX Swiss Exchange which is themain competitor for Deutsche Börse in Frankfurt, but otherGerman equity markets such as Berlin, Munich, Stuttgart orNasdaq Deutschland. By contrast, futures exchanges such asEurex compete at the global level. That is particularly true ofour top-flight products – index derivatives on the Euro Stoxx50 and interest rate derivatives on Bund, Bobl and Schatzbonds. Our edge is the fully integrated clearing solution thatEurex has thanks to the Soffex system that was developed inSwitzerland in 1988. Our transaction costs are thereforequoted inclusive of clearing – unlike those of our competitorssuch as the London Liffe or the Chicago Board of Trade,CBOT. The Chicago Mercantile Exchange, CME, is the onlyother platform with an integrated solution like ours, but itscost structure is completely different and its prices signifi-cantly higher.

Will the Eurex joint venture be expanded to include new USpartners?Spillmann: Eurex once again recorded almost double-digit

growth in its top-line products last year. But future growthpotential in Europe is becoming limited. If we want to con-tinue our dynamic expansion, we have to go into the USmarket, and with CBOT’s decision to switch to the Liffe plat-form from 2004, Eurex will have to do some strategic reposi-tioning.

Are you already holdings talks with other US derivatives exchanges?Spillmann: Yes, we are talking to all the players. However,we are not only looking into joint-venture and takeover proj-ects, but are also pursuing an alternative go-it-alone strat-egy. We have already made a preliminary submission to theUS financial markets supervisory body, the SEC, in this re-gard. It has to be said, though, that going it alone like thistakes much more time. In any event, our aim is for Eurex tobe able to offer derivatives on US equities and interest prod-ucts from 2004 onwards.

Alongside Eurex, another joint venture has been virt-x. Whatis going to happen here now that you have bought out yourUK partner exchange, Tradepoint?

“We do not want to offer Swiss securities alone – we also want

to offer efficient, cost-effective access to the international

financial markets.” Jürg Spillmann

Anlagekategorien im Überblick, 2001, Steffen Graf, Alfred Gruer, Andreas Grünbichter, Verlag Neue Zürcher

SWX Group interview

Henckel: We had two objectives in launching virt-x. The firstwas to halt and reverse the migration of SMI trading. Thesecond was to use virt-x to build up pan-European equitytrading. virt-x achieved the first objective – today, more than80% of transactions in SMI stocks are concluded throughvirt-x. That is ten percent more than before. However, wehave been less successful than we expected in attracting trad-ing volumes from national “home” markets to our pan-Euro-pean platform. But it is quite clear that we would not haveacquired the remaining 61 percent of the virt-x capital if wedid not believe wholeheartedly in maintaining our current eq-uity trading internationalisation strategy. As the sole owner ofvirt-x, SWX Group can now be assured of a greater scope foraction for necessary efficiency programmes and potentialstrategic steps.

So you are sticking to your two-track strategy with SMIstocks and pan-European equities, although you have scaledback the latter. Can virt-x cover its costs like that?Henckel: Yes. Our earnings haven’t fallen significantly nowthat we no longer offer all of the stocks in the Euro Stoxx600 index, but we have seen the benefits on the cost side.

virt-x shows that an integrated system using leading-edgetechnology is not enough of a competitive advantage to at-

tract sufficient liquidity into pan-European equities trading.Does the future not still belong to a larger number of na-tional “home” markets? Spillmann: virt-x offers very flexible cross-border settlementfor pan-European equities trading, with a choice betweenSIS, Euroclear and Crest, as well as low transaction costs –almost as low as SIS charges in the local segment. Nonethe-less, we have not succeeded in attracting as much liquidityas we had anticipated away from the national stock ex-changes, so virt-x spreads between bid and ask prices remainhigh. We were probably ahead of our time with virt-x, andwe underestimated the complexity of the banks’ decision be-tween local and pan-European trading where internal costsand charges are concerned, for example, or taking local re-search into account.

Is it only a matter of time until pan-European trading be-comes a reality anyway?Spillmann: Yes, I’m sure of it. In its time, virt-x was the an-swer to pan-European merger plans, such as the failed iX al-liance between London and Frankfurt, or the equally unsuc-cessful attempt by the Swedish bourse OM to take over theLondon Stock Exchange. SWX Group, by contrast, succeed-ing in carrying its internationalisation strategy through andactually putting it into practice. There are likely to be cross-

Zeitung. “Fit for Finance”, 2001, Bruno Gehrig, Heinz Zimmermann, Frankfurter Allgemeine Zeitung, Frankfurt

Dr Heinrich Henckel

SWX Group mittendrin 25

border stock exchange mergers sooner or later. The signs arethere in both the foundation of Euronext and the various al-liance talks that are going on between Europe’s stock ex-changes. It’s like chess: You are waiting for the other player’smove and have hopefully already anticipated how you aregoing to position yourself.

What action is SWX Swiss Exchange taking to win backdwindling investor confidence?Henckel: We and our market partners in the Swiss financialsector have been active in this area since well before the ac-counting scandals of the last two or three years. We madeefforts to improve accounting and reporting as early as1996, after the Listing Rules were issued. For example, wemade compliance with the Swiss Accounting and ReportingRecommendations (ARR) mandatory for all listed companies,thus ensuring that the standard of their financial reporting ismuch higher than the minimum requirements laid down inthe Swiss Code of Obligations. Promoting internationallycomparable regulations is also important. Switzerland hasone of the highest penetrations worldwide of the Interna-tional Financial Reporting Standards, formerly known as theInternational Accounting Standards. Among SMI stocks, alarge majority of companies do their accounting accordingto IFRS (IAS) or US-GAAP. From 2005 onwards, the ARR stan-dards will no longer be admissible in the main segment ofSWX. Companies will have to apply IFRS or US-GAAP fromthen on. Furthermore, by 1998 we had already drawn up astrategy for enforcing accounting and reporting require-ments and have since implemented sanctions against issuerson many occasions. This is an area in which we will continueto tighten the screw. What’s more, we have issued a very far-reaching Directive on corporate governance which is applica-ble for the first time to 2002 annual reports. Finally, we willstep up our efforts to improve ad-hoc publicity. These meas-ures aimed at greater transparency and the avoidance ofconflicts of interest are of the same level and scope as paral-lel measures abroad, such as in the EU.

The resegmentation of SWX could also be classified as aconfidence-building measure. What should we expect?Henckel: The resegmentation debate was triggered by thecessation of marketing activities for the SWX New Market,but even before then, some issuers had applied to move tothe main segment owing to concerns about the decliningimage of the New Market. In doing so they also moved to aless regulated segment, because some specific rules, suchas those governing accounting and reporting, applied onlyto the SWX New Market. This trend is not in the interestsof investors, of course. We came to the conclusion that

regulatory segmentation must be independent of other cri-teria such as sector allegiance and performance. The reseg-mentation of SWX is intended to take account of theseconsiderations and to ensure that a high standard of regu-lation is maintained and clear criteria are given for the wayin which companies are allocated to their different groups.At the same time, the door to listing should still be heldopen to young companies.

Has SWX been inspired by the resegmentation of DeutscheBörse?Henckel: We keep overtaking each other. For example, wehalted trading on the SWX New Market before the NeuerMarkt was closed, and we also began to look at resegmen-tation at a relatively early stage. In the meantime, DeutscheBörse has decided to restructure. We will be analysing whatthey do closely and it will play a part in our deliberations. It isstill too early to say at the moment how SWX will ultimatelybe segmented, but one thing is certain – it will reflect thecharacteristics of the Swiss economy.

Will the resegmentation also take the Bern stock exchangeinto account?Henckel: SWX Swiss Exchange and the Bern stock exchangedo not compete against each other. Bern is a complementaryplatform for local stocks and listing there is a precursor toSWX listing.

How great is the competition from moves by the banks tointernalise securities transactions? Henckel: For around two years now, major banks have beentrying increasingly to settle purchases and sales in-house. Astudy published last year estimated that one day, if internali-sation really takes hold, the banks will be able to settle tenpercent of stock exchange trades in-house. We are keepinga very close eye on this financial market trend.Spillmann: In the rest of Europe, there is already discussionof regulatory action to stop the trend. Unfortunately, theissue hasn’t yet made it to the Swiss agenda.

Interview: Urs Aeberli, Dep. Editor-in-Chief of the investor magazine Stocks «

Internet: www.fasb.org, www.fer.ch, www.bondmarkets.com, www.fese.be, www.iasc.org.uk, www.iosco.org/iosco

Logitech portrait

Printed works: Das Börsen–1x1 – Handelszeitung Zürich. Die Performance von Unternehmen vor und nach

The IT market is experiencing a global crisis. The dreams ofthe New Economy are shattered, and the computer industryhas been dealt a particularly heavy blow. One company,however, stands apart: Logitech, the computer peripheralsmanufacturer whose holding company is domiciled inSwitzerland and whose centre of operations is in California,continues to flourish. The figures for the third quarter of2002 show impressive growth: an increase in turnover by 18per cent to 353 million dollars and an increase in the netprofit by 22 per cent to 40 million dollars. For the financialyear as a whole, a turnover of more than one billion dollarsis expected – a frist. The manufacturer of computer mouses,keyboards and joysticks has been enjoying steady growth ofits turnover for sixteen quarters. The secret of its success isstrict cost control, which allows Logitech to ship low-cost yethigh-quality devices, and dynamic marketing.

Listed in Switzerland and New YorkThe company, which was founded in 1981 by Daniel Borel,an entrepreneur from the French-speaking part of Switzer-land, and some of his friends, is now a globally active giantwith more than 4,500 employees. Logitech was founded inRomanel-sur-Morges in the canton of Vaud. The centre ofdevelopment is in Fremont, Silicon Valley. Its CEO is Guerrinode Luca, an Italian. Mr Borel is the Chairman of the Board.The global nature of the company is reflected by how it islisted: Logitech is listed both on Switzerland’s SWX Swiss Ex-change and on Nasdaq, the US technology stock exchange.Logitech’s market capitalization is currently about two billionfrancs.

With 75 to 80 per cent of all traded Logitech shares, theSWX Swiss Exchange is clearly dominant in terms of volume.On average, shares to the value of about 13 million francschange hands each day. The price, however, is usually deter-mined by Nasdaq. Throughout the trading day, the price ofLogitech fluctuates according to the state of the US technol-

ogy stock exchange. Logitech has been listed on the Swissstock exchange since 1988; it has been listed on Nasdaqsince 1997. The way the company opened up to the capitalmarket step by step reflects its corporate development,which also was a step-by-step process.

Starting capital of 50,000 francsLogitech was founded in 1981 with a starting capital of50,000 francs. A group of young hi-tech pioneers surround-ing the physicist and computer scientist Daniel Borer con-tributed their savings. Initially, Logitech was purely a soft-ware company. It was only in 1982 that Mr Borel and his col-leagues developed an “interactive graphical peripheral de-vice for computers”, now simply called “mouse”, which wasbased on a proto-mouse that had been built in a laboratoryat the Swiss Federal Institute of Technology Lausanne. Atfirst, Logitech only developed and programmed mouses;their manufacture was carried out by other companies. Oneof Logitech’s main customers, however, the computer manu-facturer Hewlett Packard (HP), urged the Swiss company totake over the manufacture of the projected devices as well.But developing the necessary manufacturing capacity cost alarge amount of money. The starting capital and the profitsfrom the software business amounted to far too little. In1984 and 1986, Logitech succeeded in acquiring risk capitalin two tranches of 600,000 francs each. Private investorsand the Genevan private bank Darier & Cie provided themoney. The rapid growth of Logitech, whose turnover dou-bled every year from 1986 to 1988, increased the company’scapital requirements even further. “More machines had tobe acquired, more manufacturing plants had to be built”,reminisces Mr Borel.

Successful IPO in SwitzerlandThe company’s greatly increased capital requirements werethe reason that Logitech went public in 1988. The IPO in

Logitech and the stock ex-change: capital for mousesLogitech, the computer peripherals manufacturer, a global company with Swiss origins, has enjoyed rapid growth. The stockexchange played a key role as a financing tool.

SWX Group mittendrin 27

dem Börsengang, 2001, Mager, Ferdinand, Deutscher Universitäts-Verlag, Wiesbaden. Modern Corporate

The company, which was founded in 1981 by Daniel Borel, an entrepreneur

from the French-speaking part of Switzerland, and some of his friends, is now a

globally active giant with more than 4,500 employees.

Daniel Borel

Logitech portrait

Finance, 2002, Shapiro, Alan C. Balbirer, Sheldon D., Prentice Hall, Englewood Cliffs. Wertorientiertes

Switzerland was successful; Logitech acquired more than 25million francs in fresh capital. And there was a beneficial sideeffect: “Going public strengthened our image”, says MrBorel; “it increased our visibility and credibility.” One of themain reasons for this is the greater transparency and thecloser look into its business figures that Logitech now had tooffer, which allowed lending banks to evaluate Logitechmore easily. Because its credit limits were raised, it became

Logitech, the computer peripherals manufacturer whose

holding company is domiciled in Switzerland and whose centre of

operations is in California, continues to flourish.

easier for Logitech to acquire loan capital in addition to itsnew equity capital – a welcome consequence of its listing onthe Swiss stock exchange.

The company grew steadily until 1992, when it experi-enced a deep crisis. For a long time, the considerable mar-gins on mouses financed the company’s diversification intoother product lines as well. With the rapid development ofthe computer market and the appearance of new competi-

SWX Group mittendrin 29

Start-up-Management, 2001, Ulrich Hommel, Thomas Knecht, Verlag Franz Wahlen Gmbh, Munich

tors, prices, and therefore margins, dropped sharply. Profitscollapsed, prices tumbled. The years from 1993 to 1995were marked by radical restructuring. The old businessmodel had to be adjusted to new market conditions.

Secondary listing in New YorkBy 1996, Logitech had recovered – just in time for the surg-ing Internet and computer hype. In the US in particular, thedemand for hi-tech devices virtually exploded. It was, how-ever, also the era of stock options, with which the boomingtechnology industry attracted talent, which was in short sup-ply. With its listing on the SWX Swiss Exchange alone, Log-itech was at a disadvantage in Silicon Valley, as it was onlyable to offer employees securities in Swiss francs and not inUS dollars. “In 1997, therefore, we decided to attain a sec-ondary listing on Nasdaq,” says Mr Borel, explaining whythis step was taken. For Logitech, its listing on the US tech-nology stock exchange was also important for two otherreasons: one, it made it easier to make acquisitions in the US

and pay for them with shares, and two, dual listing in-creased the company’s visibility and the liquidity of its shares.“In the final analysis, a share is like a product. Offering itworldwide increases demand and makes trading easier”, saysMr Borel. With a dual listing on the SWX Swiss Exchangeand Nasdaq, he considers this requirement fulfilled.

The best of two culturesWhat Mr Borel appreciates most about the Swiss financialmarketplace is its high degree of professionalism and theeasy access that Switzerland offers international investors.Strong, globally active banks – Logitech uses the services ofboth major Swiss banks, UBS and CS Group – are likewise afactor in Switzerland’s attractiveness. Logitech found it easyto place bonds and convertibles, which are used to financeacquisitions, for example: “The Swiss capital market”, saysMr Borel, “has always provided us with adequate amountsof money.” The accounting provisions prescribed by thelaw, he adds, can be fulfilled by most companies. Stamp

Logitech was founded in 1981 with a starting capital of 50,000 francs.

Its rapid growth increased its capital requirements.

Logitech portrait

Internet: www.logitech.com, www.standortschweiz.ch

duty, on the other hand, annoys him: “It should have beenabolished a long time ago.” As far as he is concerned, it un-necessarily detracts from the Swiss financial marketplace,which otherwise enjoys a positive tax situation.

Mr Borel considers it an advantage that even today,even though it is becoming increasingly globally active, Log-itech’s main financial roots are in Switzerland. Logitech de-liberately celebrates its blend of cultures and extracts whatis best from each. If the US provides a rigorous entrepre-

neurial spirit and delight in technology, Switzerland providesquality awareness and the necessary prudence. This pru-dence has prevented leading Logitech employees frombuilding financial castles in the air like so many other hi-tech companies. The equity market has rewarded this: Log-itech securities are doing appreciably better than the col-lapsed sector indices.

Text: Erik Nolmans, writer for the financial magazine Bilanz «

“More machines had to be acquired, more manufacturing plants

had to be built”, reminisces Daniel Borel.

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