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Swiss Re CEO Puts Covid Cost at $12 Trillion: Future of Finance

(Bloomberg) — The coronavirus crisis, Brexit, climate change and the end of the Donald Trump-era will disrupt markets and challenge investors and policy makers heading into 2021.To help sort through the issues, Bloomberg is hosting the Future of Finance conference, a virtual event with leading figures from banking, insurance, regulatory agencies and central banks. Highlights on Wednesday include discussions with the chief executive officers of Credit Suisse, Swiss Re and Allianz (click here for the full agenda).On Tuesday, Robert Kaplan, head of the Federal Reserve in Dallas, told the event that the resurgence of Covid-19 jeopardizes the next two quarters for the U.S. economy, which is poised to bounce back.“Over the horizon, the future looks bright, and we’ll have a strong year next year, but we have got to get through the next couple of quarters,” he said.Here’s the latest from the event, updated throughout the day (timestamps are local time in Frankfurt):Managing Covid Is Still Tense (9:15 a.m. CET)Thomas Gottstein, who became Credit Suisse’s CEO in February, spoke of a difficult year to start on the job. He said he was surprised to see how well home-office programs ended up working.One of the most difficult moments was the beginning of the second quarter when the bank was still guessing how much to provision for potential credit losses and there was a lot of demand for liquidity from its clients.Several months into the pandemic, managing the crisis is “a bit more predictable but still tense.”Consolidation Needs to Happen (9:25 a.m. CET)Gottstein spoke on the future of the European banking sector. “Consolidation is needed and will happen,” he said, adding that mergers will be more domestic than cross-border.He said the bank has a good platform to grow organically but will always remain open to looking at opportunities especially in private banking.Gottstein said negative rates will continue to pressure banks in Europe to consolidate as net interest makes up 50% to 60% of revenues.Covid Spurs Digital Shift (9:30 CET)Fallout from the pandemic has pushed Credit Suisse’s clients to be more digital and demand more private-market products in their search for yield, Gottstein said. Clients are also seeking more ESG products, especially in Europe.“We have an opportunity, once we are out of the Covid-19 crisis, as a lot of private banking clients want to have full blown solutions around ESG,” he said. “European private banking clients feel underserved in private markets and ESG.”On competitiveness in wealth management, Gottstein said Credit Suisse is well-positioned with its focus on ultra-high-net-worth individuals and on entrepreneurs.The bank’s Swiss base is also very helpful as it is regarded more than ever as a safe haven, as evidenced by the recent strengthening of the Swiss franc, Gottstein said.Watching the Franc (9:35 CET)Gottstein will be paying close attention to Switzerland’s currency.“It will be interesting to see how the Swiss franc will develop against the dollar and other major currencies,” he said, noting that the currency had almost a 10% increase in the third quarter from previous year.Asia’s Growth Mode (9:40 CET)Gottstein pointed out that post-Covid Asia is in growth mode, compared to the defensive outlook in Europe.“China is absolutely key for our global plans,” he said. The bank is seeking securities licenses, hiring relationship managers and hoping to get investment-banking business from its private-wealth clients — often entrepreneurs who want to tap the public markets.“There is a lot of investment needed over the next three to four years,” but the bank’s strong brand in China helps. The challenge in private banking is “to find the talent. There is a big competition for talent.”The bank has a 51% stake in its local securities venture, but hopes to take it to 100%, and is “very active” in equity and debt sales for Chinese companies.Market-Based Recovery (9:45 CET)On the post-pandemic economic recovery, Gottstein called on the governments to step aside and let the financial system do its work and be part of the solution.“Certain areas like airlines and airports will need government support,” he said. “The rest should let the markets do it, it should be done by the banks.”Covid’s Not a Black Swan, But Costly (10:05 CET)Swiss Re’s CEO Christian Mumenthaler says the coronavirus pandemic wasn’t a black swan event. He put the estimate of output lost as a result of Covid-19 at $12 trillion.“Every 30 or 40 years we have these types of pandemics, and unfortunately since it is viral, we still don’t have the effective way to combat them,” he said.The surprise wasn’t so much that there was a pandemic, but rather the reaction of societies and the stringent lockdowns.“Pandemic is a risk that cannot be diversified and cannot be insured,” Mumenthaler said. “The insurance industry knows this.”Increasing Climate-Change Risk (10:10 CET)Swiss Re’s Mumenthaler gets right into the issue of climate change and catastrophes and how insurers and reinsurers are adjusting their models accordingly.“Fire has increased due to climate change — an impact can be measured,” he said.Conversely, there’s no evidence that climate change causes hurricanes, but damage bills are more expensive from those storms as people build expensive property in vulnerable areas.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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