Zürcher Kantonalbank explains why everything remains the same despite the OECD minimum tax, warns of a credit crunch if regulation is overstepped and takes up the cudgels for its investment banking business.

Following the publication of its annual financial statements, Zürcher Kantonalbank (ZKB) hosted a media conference on Friday at which CEO Urs Baumann and CFO Martin Bardenhewer were on hand to answer questions.

One important point was that, despite the OECD minimum tax (ZKB appears to be the only cantonal bank to be subject to this), nothing will change for the canton and the municipalities. The canton will continue to receive compensation for the endowment capital and compensation for the state guarantee. In addition, it and the municipalities receive a dividend (distribution).

OECD Minimum Tax: Shuffling Money from One Pocket to Another

The OECD minimum tax (156 million Swiss francs in 2024) will now also flow to the canton. Unlike the OECD tax for other large companies, however, the canton can keep the entire tax revenue for itself (and does not have to split it with the federal government). However, the Finance Directorate receives no additioinal funds compared to the old system, as the canton's regular dividend has been reduced accordingly.

In total, ZKB will distribute 392 million francs to the canton and 170 million francs to its municipalities for the 2024 financial year.

Baumann emphasized that ZKB is the «world's safest commercial bank» because it is the only one to have a triple-A rating (and therefore the top rating) from all three major rating agencies. Even without a state guarantee (standalone), it is rated in the double-A range by Standard & Poor's. One reason for this is its strong capitalization; ZKB clearly exceeds the regulatory requirements.

Leverage Ratio: 30 Billion Francs from the Canton or Credit Crunch

Nevertheless, Baumann and Bardenhewer generally opposed a further tightening of the capital requirements for systemically important banks, as envisaged by the Federal Council as part of the revision of the too-big-to-fail legislation (TBTF).

A proposal currently being discussed to raise the unweighted equity ratio (leverage ratio) to 15 percent would require the canton to inject 30 billion francs in capital or force ZKB to significantly shrink its balance sheet, thereby reducing lending.

Organic Growth with the Guarantor

Among the highlights of the past year, the CEO mentioned Private Banking, where ZKB intends to focus on its home market and Germany following the sale of its subsidiary in Austria. The bank also launched a Digital Asset Hub, a platform on which not only cryptocurrencies but also other digital assets can be traded in future. ZKB Philanthropie Foundation, has successfully launched its activities, a field that is also to be further expanded with a new fund.

Baumann echoed the concerns of UBS critics, emphasizing the importance of balance sheet quality – rather than just its size – and equity, stating, «we have never capitalized IT investments.» Excluding cash and cash equivalents (ZKB held liquidity of almost 50 billion francs at the end of 2024), the bank's balance sheet growth roughly aligns with the economic growth of the guarantor, the Canton of Zurich.

Reduced Variable Salary Component

The change in the remuneration model as of 2024 primarily affects employees. The variable component (bonus) saw a significant decline, dropping from 362 million francs in 2023 to 294 million francs. Meanwhile, the fixed component (basic salary) increased from 597 million francs to 688 million francs, with the number of employees (in full-time equivalents) rising by 4.3 percent to 5,779.

Thankfully, ZKB also seized the opportunity to strengthen its role in investment and corporate banking, a sector often met with skepticism. According to a press release, the bank acted as lead manager for 14 equity transactions of issuers listed on the SIX Swiss Exchange in 2024 and a further 9 such transactions in other functions or on other trading venues.

Leader in the Bond Segment for Swiss Borrowers

In the debt capital market, ZKB accompanied 117 new bonds worth 21.5 billion francs and describes itself as the leading institution in the domestic segment, which is in the market for domestic borrowers.

With the following statement, the bank effectively counters the widespread, indiscriminate criticism of the investment banking business: «By supporting Swiss companies, cantons, cities and municipalities in their capital procurement, Zürcher Kantonalbank fulfills an imortant economic function.»