SPIEGEL: Mr. Weber, how much of the money of German tax dodgers is still in accounts at UBS?
Weber: Switzerland must undoubtedly address the way it handled illegal money in the past. I still believe that the tax treaty with Germany is the right approach for this, even though it failed to make it through the German Bundesrat the first time around. For Switzerland, it's a matter of €10 billion ($13 billion), which would be paid to the German treasury as part of the treaty. The calculation includes the Swiss application of an average tax rate of more than 25 percent.
SPIEGEL: So based on your numbers, we're talking about €40 billion. To what extent does this affect UBS?
Weber: It's not us, but our customers who are affected. But we support the treaty and have hopes for the mediation committee.
SPIEGEL: The chances for success look slim. What will you do if the treaty falls apart once and for all? Will you throw out tax-evading customers?
Weber: The German finance minister wouldn't choose the path through the mediation committee if he didn't see a chance of saving the treaty. But if it fails nonetheless, we will certainly appeal even more strongly to our customers. We already support them in the effort to come clean with their taxes retroactively for 10 years. UBS doesn't want a clean-money strategy. It needs a clean-money reality.
SPIEGEL: For many citizens, it violates their sense of justice to see people who moved their assets to Switzerland years ago without paying taxes now getting off relatively scot-free.
Weber: Let me remind you that in 2003, the Social Democrats in Germany pushed through a tax amnesty at an effective rate of 15 percent. I can't understand why so few customers took advantage of that opportunity at the time. Now there's a second offer on the table, at 25 percent, which I believe many will now accept. With or without a treaty, there will be no getting around compliance with the tax laws.
SPIEGEL: Norbert Walter-Borjans, the finance minister of the western German state of North Rhine-Westphalia, has announced that if the treaty is off the table, Germany will take a similarly aggressive approach against tax evaders as the United States. Does this worry you?
Weber: I'm meeting Mr. Walter-Borjans for dinner this week, and I'm looking forward to it. After all, as Bundesbank president, I saved North Rhine-Westphalia's state-owned bank at least three times …
SPIEGEL: ... so you're saying that the state still owes you something?
Weber: No, but we have good relations, and we both know that there are sometimes issues lying dormant in banks that have to be talked about. There is no disagreement between the Germans and the Swiss over the goal of clearing up the tax problems. The only disagreement is over how we get there.
SPIEGEL: UBS's new strategy is focused on asset management. Is this the right approach, given the harm the tax scandal has done to your reputation?
Weber: I was in Singapore, Hong Kong and Sydney a few weeks ago, and in Dubai and Abu Dhabi in the last few days. UBS's global customers are very satisfied with the bank.
SPIEGEL: Speaking of Singapore, doesn't the country present a good opportunity for your customers to escape growing regulation in Switzerland?
Weber: Singapore has among the strictest regulations for the acceptance of customer funds and one of the most rigid sanction regimes for tax evaders. German Finance Minister Wolfgang Schäuble has just renewed the double taxation treaty between Germany and Singapore. We welcome our new customers in Singapore just as we do in Switzerland.
SPIEGEL: How do you welcome new customers? What would you do if we showed up here with a suitcase full of money?
Weber: I would probably accompany you out the back door and ask you to take you money to the tax office. Our customers must confirm that the money they invest with us was properly taxed. We make them aware of the sanctions they could face if this is not the case.
SPIEGEL: At UBS, you haven't just inherited the dispute over the tax treaty, but also the scandal surrounding the trader Kweku Adoboli, the LIBOR affair over manipulated interest rates and other problems. How tainted was the culture you encountered here?
Weber: Many of the issues you mentioned are not problems specific to UBS. However, with Adoboli …
SPIEGEL: … the UBS securities trader whose speculative deals in London led to a loss of more than a billion euros …
Weber: … that was not the case. The verdict speaks for itself. He was given a very tough prison sentence and financial sanctions were imposed on the bank. We have learned our lesson and changed the processes through which we monitor risks in securities trading. For us, that brings the case to a close.
SPIEGEL: But the Swiss Financial Market Supervisory Authority (FINMA) has deployed a watchdog to your bank. Does it distrust you?
Weber: FINMA sent an auditor as an independent third party, who is monitoring the implementation of our measures. The authority has no doubt that we have massively improved our risk management. The fact is, however, that CEO Sergio Ermotti and I found UBS to be in a sorry state in many respects. All of the weaknesses in risk management will be corrected by the end of the year. This means, for example, that we will be technically capable of gaining an overview of the total risk to the group in every corner of the bank and with every deal that we make.
SPIEGEL: So it will no longer be possible for a trader like Adoboli to gamble away billions?
Weber: It isn't enough to ensure that one specific incident is not repeated. We need a risk control system that permits no blemishes and ensures that mistakes are recognized shortly after they happen. But in a bank with 60,000 employees, you can never completely rule out the criminal misconduct of individuals.
'New Rules for Trading Will Change Investment Banking'
SPIEGEL: The misconduct was widespread throughout the entire industry when it came to manipulating the LIBOR key interest rate. Was it a case of organized crime?
Weber: There are 150 different rates in the LIBOR system. There were deep distortions within the system. The truth will only gradually come to light, and many investigations are just getting underway.
SPIEGEL: What was especially new about the scandal was the fact that there was collusion among different banks.
Weber: The LIBOR rate is an indicator of the health of each particular bank. And there was apparently an attempt by some to paint themselves in a more favorable light than was actually the case. This may not be organized crime, but in my view the LIBOR scandal poses one of the fundamental risks to the reputation of the entire banking industry. We still have a lot to do to work off this scandal.
SPIEGEL: Did watchdogs turn a blind eye to the problem, precisely because LIBOR was a heath indicator, as you call it?
Weber: I don't think so. At the time, the watchdogs simply had many things that demanded their full attention. When I returned from a vacation in the United States in July 2007, I was immediately asked to attend negotiations to support (mid-sized Düsseldorf-based bank) IKB. Things happened very quickly after that. We watchdogs had to focus on limiting the damage in an acute situation and averting a collapse of the credit system.
SPIEGEL: You have now gone from being a watchdog and regulator to one of the regulated. Is the trimming of investment banking business at UBS a logical consequence drawn from your previous role?
Weber: What helps me the most in reorienting UBS is the fact that, as a regulator, I played a key role in shaping the new basic conditions for banks after the financial crisis. That's why I know that the new rules for trading operations, equity capital and liquidity will fundamentally change investment banking. For complex trading operations, in particular, the capital requirements will be so high in the future that they can no longer be pursued in a profitable way. That's why UBS will no longer engage in certain businesses.
SPIEGEL: So these businesses aren't worthwhile for UBS or any other investment bank?
Weber: Each bank will have to decide that on its own. For a while, one can indulge in the illusion that the new rules won't happen that quickly, or perhaps won't happen at all. But anyone who believes that doesn't understand how determined the regulators were and are. I'm not one to fall for that fallacy.
SPIEGEL: So you would take exactly the same approach if you were now the head of Deutsche Bank, which wasn't beyond the realm of possibility at one point?
Weber: You should put that question one of the co-CEOs of Deutsche Bank. They're more familiar with their bank's capital costs and returns.
SPIEGEL: Is it possible that customers who want certain services will turn away from UBS, benefiting competitors like Deutsche Bank?
Weber: Of course it's possible. But it can also go the other way. The especially high capital requirements in Switzerland exist because taxpayers here are not willing to accept the risks that result from the risky trading operations of investment banks. That's why they want an equity capital ratio of 19 percent, which significantly improves the resilience of banks. I don't think taxpayers in other countries are willing to take on the risks that their own banks assume when they take away business from Swiss banks.
SPIEGEL: Shareholders are also urging other banks, like Barclays, to make drastic cuts to investment banking. Could UBS become a model for the industry?
Weber: They're welcome to imitate us. The reaction in the markets, with a significant increase in the share price, shows that we are on the right track. With our strategy, we are fulfilling the new capital requirements much earlier than others, and we'll also be able to start consistently paying dividends again much earlier than others. When it comes to the strength of their finances, the position of other banks -- including German banks -- is like that of the northern German lowlands relative to the Swiss Alps. Someone who wants to keep a large balance sheet total in investment banking will have to climb a long and rocky path to satisfy the capital requirements.
SPIEGEL: You mean Deutsche Bank?
Weber: No, I'm talking about all institutions and their challenges. I have the luxury of referring to UBS as one of the best capitalized banks in the world.
SPIEGEL: You mentioned the risk to German taxpayers. Would the Liikanen Commission's plans to separate deposit banking and trading operations in European Union banks reduce these risks?
Weber: In Switzerland, they have concluded that deposits are sufficiently protected if the capital ratios are high enough. This is a neutral approach that doesn't require intervening into the structure of the banks. However, I believe that a form of the divided banking system will become the norm outside Switzerland, in various ways. This can certainly make sense.
SPIEGEL: Large banks complain that their investment banking operations would no longer be competitive in a divided banking system.
Weber: It will certainly become more difficult for investment banks to refinance their operations if they no longer have access to deposits from the private customer division. It should be noted that we decided to cut back investment banking even though there won't be a divided banking system in Switzerland. Other banks have yet to see these additional costs.
SPIEGEL: We can't end this conversation without asking how the euro crisis would have gone if the ECB president today were not Mario Draghi, but Axel Weber.
Weber: I'll leave the answer to that question up to your journalistic expertise.
SPIEGEL: Are you happy to be getting your salary in Swiss francs?
Weber: The euro zone was in a difficult situation when I left the Bundesbank, and it still is today. I attributed my departure to the fact that I disagreed with large segments of the ECB Council on key questions of crisis management. The purchase of Greek government bonds in May 2010 gave the wrong incentive, namely to postpone reforms. This has lead to the development of a reform gridlock in the euro zone today that has only made the situation worse. Many today see that the fears some had expressed have become reality. At the time, I wanted to pave the way for a successor who could represent Germany in the ECB with the strength of and eight-year term and a new way of looking at things.
SPIEGEL: For Jens Weidmann, who is still fighting the same fight you fought at the time.
Weber: That's to his credit.
SPIEGEL: Mr. Weber, thank you for this interview.
Interview conducted by Armin Mahler and Martin Hesse