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“We are now aware of our collective vulnerability”

Marc Bürki shares his thoughts on the current crisis. Interview via videoconferencing.

An exceptional situation requires an exceptional response.
The Swissquote Bank CEO, and editor of Swissquote Magazine, gave us a lengthy interview for this rather special issue. Given the health measures currently in place, the interview was carried out using video conferencing in the company premises. While shedding a human light on the situation, Marc Bürki criticises the Confederation’s lack of communication to companies in the early stages of the crisis. As all eyes turn towards the United States, he also attempts to anticipate what the world will look like after the crisis.

The unique nature of the current crisis seems to defy all forecasts. Are there precedents we can look to?

The world has never seen anything like this. When looking at financial markets, many people are tempted to compare the current situation with what happened in 2008, but the starting scenarios are very different. In 2008, the crisis was structural and related to the fundamental functioning of the economy.

This time, the shock came from an outside event. In 2008, the bear market lasted two years with a gradual decline. This time, however, we have seen an extremely sudden and brutal market crash. I don’t think this can be compared to other crises.

Without a point of comparison, how do you envision the months to come?

It’s very difficult to answer that question, because there are many unknowns. At the moment, no one knows when the pandemic will truly end. And we cannot discard the possibility that the virus may come back in a few months. The only way to definitively overcome this crisis is to reduce the number of new infections to zero or to find a vaccine, but when will it be available? In the meantime, the only thing we can do is hypothesise.

But once the virus is controlled, the fundamentals should recover as the economy restarts and consumption gradually picks up. That’s what we’re already seeing in China and Hong Kong in particular. But consumption cannot simply be switched on or off. When it resumes, it will be cautiously.

What will the Swiss economy look like at that time?

According to the latest projections by the State Secretariat for Economic Affairs, dated 11 April, gross domestic product in Switzerland has already fallen by 1.5% and the most plausible scenario assumes an annual recession of around 7%. However, I believe that the economy will rebound strongly once the crisis is over. There will be a catchup effect, which is quite common in this kind of situation. It should also be noted that the health sector is supporting the economy even during this period of crisis. Investment in hospitals is generating an economic boom in the sector. There is a demand for beds, medicines, various products. Infrastructure needs to be developed. Hiring is on the rise. So the economic boom in this sector partly compensates for the downturn.

However, there is another, gloomier scenario with a health crisis that extends into the third quarter and a decline in GDP of around 10% for the year as a whole. Something not seen since the oil crisis of 1974.

What impact will the situation in the United States have on these forecasts?

As the leading global power, the United States by and large hold the fate of the global economy in their hands. Everyone is now looking to them to see what will happen. If the US is unable to contain the expansion of the virus in the coming weeks, we will be heading for a very serious and long-term crisis, with a global annual GDP in significant recession. But after a period of denial, Donald Trump seems to have understood the gravity of the situation, which is promising.

To avoid worst-case scenarios, countries are setting up extremely expensive recovery plans. Will countries that are already deep in debt be able to pay for these plans?

You’re right, the numbers are very high. The enormous amounts of money injected into the system should in theory be paid back. But in my opinion, any debt associated with the virus will be handled separately, without the usual control measures. For the European Union, the eternal problem is that northern countries do not want to pool debt. So while the ECB will not be issuing eurobonds (or coronabonds), it will nevertheless purchase debt from states and companies, while the EU will set up major recovery plans. In the long term, it’s sort of the same thing. In Switzerland, we will repay debts over a period of 25 years using profits from the government, according to the Federal Council.

Is there a risk that this massive support for companies will artificially prop up the economy?

There are good and bad ways to use fiscal stimuli. The bad way would be to bail out certain companies in hopes of winning elections in the future. That would be catastrophic, of course. The correct way is to use resources responsibly, focusing on the sectors of the economy that are most affected by the crisis.

In Switzerland, this problem will not occur. We will not play electoral politics using public funds. I think the money put into the system will be used wisely, and we will likely see the same in Europe. But the real gamble is the United States, where the current political climate is so divisive that anything can happen. That said, the current virus situation is so out of the ordinary that even the most unpredictable politicians tend to become more reasonable.

After the pandemic, will there be changes in the way our economies are organised?

Some people are already predicting the end of capitalism. Those predictions were made in 2008 and then time passed and capitalism remained in place. I don’t think that a global change will occur after this crisis, but we will reconsider how we handle supplies and lean manufacturing. It has become clear during this pandemic the extent to which the entire global factory has ground to a halt following the stay-at-home measures that have been imposed essentially everywhere. It’s also clear just how dependent we are on China as a production workshop.

We don’t want to be caught unprepared a second time and find ourselves once again in a situation where governments need to scramble around the world to buy masks... This will lead to a reflection on the autonomy of the healthcare system and, more broadly, on the stocks of strategic parts in the industry. In the future, we will probably produce certain products locally, even if doing so is a bit more expensive.

Isn’t that an ideological victory for proponents of sovereignty?

Only on the surface. National borders didn’t stop the virus from spreading. And let’s not forget that Switzerland has a very large number of foreign-born healthcare professionals in our country, particularly from Germany and France. Without all of these people working in Switzerland, we would be in a very bad spot.

 

“The United States by and large hold the fate of the global economy in their hands”

 

The Italians felt abandoned by Brussels at the height of the crisis. Do you think that the European Union will survive the pandemic?

I think so, yes. Europe has always survived crises. If you think about it, sometimes it’s at its very best under pressure. Faced with the threat of the EU disappearing, politicians will always find the necessary resources to continue. But some serious consideration will have to be given regarding the centralisation of efforts in times of crisis. And that’s not unique to the European Union. In the United States, individual states took more initiative than the federal government. The same was true in Switzerland, where the cantons were the first to make strategic health decisions.

So far, have Swiss health authorities adequately responded to the crisis?

When we write the history that we are living through today, this crisis will always be in every economic and cultural history book. The 2020 virus will remain in public memory much like World War II has. At that point, we will be able to retroactively analyse the errors that were made in how the crisis was managed. It’s obviously much easier to do so after the fact.

In Switzerland, the authorities have acted in a calm and determined manner despite everything. Let’s not forget we were the first country in Europe to ban gatherings of over 1,000 people. These significant actions probably saved many lives. But at the time it seemed crazy. Cancelling the Geneva Motor Show seemed surreal. At that time, Italy hadn’t yet banned football matches, even though the progression of the disease was more advanced in Italy at that point than it was in Switzerland. After that, there was a moment of hesitation. Companies were largely left out of communications from the Swiss government. We received very few guidelines about what we were supposed to do. There was lots of communication addressed to citizens but next to nothing for companies.

Are you saying that as CEO of a bank, you had no contact with the SECO or FOPH, those types of institutions?

Not officially. Companies took common-sense action individually in the beginning. I was in a rather privileged situation: as I’m on the ETH Board, I’m in contact with several people in Bern and was therefore able to get an idea of the action that needed to be taken.

After that, the situation improved somewhat. As for the bank, the umbrella organisation, the Swiss Bankers Association, started to provide information about the loans set up by the Swiss government, the much-discussed COVID-19 loans worth 500,000 Swiss francs. There were communication efforts, and fairly quickly FINMA took action to secure capital for companies.

Do you think the economic measures that Switzerland has taken are appropriate for the situation?

Partial unemployment is a proven method that works well. It’s the equivalent of helicopter money in states where the social safety net is weaker or there isn’t another way to help citizens. In the United States, the government is supplying a $1,000 cheque for each American and up to $3,000 per household. Switzerland will end up distributing a lot more money per person on average, since the government will be paying salaries, rather than companies having to do so. In terms of support for businesses, the concept of a COVID-19 loan has been replicated in other countries based on the Swiss model. The loans are made to companies that had a healthy business model before the crisis. The system is efficient: the Swiss government gives banks the responsibility to determine which companies weren’t already struggling. Banks are playing along.

It’s a very pragmatic approach, very Swiss in fact...

We do things urgently, but we do them well. But the damage could be significant for micro- and mono-enterprises that aren’t structured as a public limited company [SA]. These companies are in serious danger. Those that were in a precarious situation before the crisis will likely collapse. Once this crisis is over, individuals need to support small businesses and shop locally, as these businesses are essential to our economy.

Will the crisis motivate companies to become more responsible overall?

I think so, yes. We are now aware of our collective vulnerability. Previously, when we talked about climate change, for example, it was still kind of theoretical, despite everything. We saw icebergs melt, we said it’s going to be catastrophic, but in 50 years... everyone said: “We have time.” The crisis wasn’t incredibly urgent. But now we know just how vulnerable we are to our environment. We must hope that this serves as a lesson and that we realise that we cannot simply abuse the environment indefinitely. Social overcrowding and pollution are concepts that we will have to tackle head-on.

Public freedoms seem incredibly threatened. Are you concerned about generalised surveillance of the population?

Absolutely. As soon as health is involved, we lower the bar when it comes to freedoms. When faced with two threats, we focus on the most immediate danger. It doesn’t matter that the government is monitoring us if our lives are in danger every time we go outside... That’s why we need a vaccine quickly. The alternative is permanent tracking of individuals.

This is already in place in China, where each person is colour-coded to determine if they are safe to no longer self-isolate. In the west, these measures won’t be accepted long-term.

What is your opinion on widespread remote working?

The home office is a phenomenal success. One reason is that it’s possible to work relatively comfortably from home now that internet speeds are fast enough. Can you imagine what it would have been like if the pandemic had hit in 2005? At that time, download speeds meant it wouldn’t have been possible for all employees to work from home.

At Swissquote, we already offered options to work remotely before the crisis, to reduce the issues and loss of time related to commuting. We were lucky because we were prepared, and we were able to send 90% of employees home to work remotely, from all sectors of the company.

Now that we know remote working can be successful, do you think it will become more widespread in the future?

There will be some takeaways from this experience. But I do think it’s important to physically be in the workplace. We are social beings, we need physical contact with other people. We need proximity. That is currently impossible and it’s heartbreaking. A system where our professional interactions are limited to videoconferences would lead to lots of depression in the long term. That’s not a model that our society should follow. A balance between remote working and physically being in the office seems like a good compromise to me.

 

“The markets worked as intended. The system did not fail.”

 

The market has fallen significantly during the crisis. What roles did robots play in the crash?

They amplified the phenomenon, as they always do. Most stock market players are algorithms now. There are very few human players. But now that’s practically a part of the market.

Wouldn’t it make sense to reduce the power of the algorithms to limit the amplification effect?

The number of products processed on the market has become so enormous that humans alone simply cannot process everything. An overview is no longer possible. We need machines to help us organise the market. Of course, it makes sense to establish limits for these machines, including via circuit-breaker systems like they have in the United States.

That said, neither management via algorithms nor even the often-discussed high-frequency trading are responsible. In this case it wasn’t a flash crash, but rather an exterior event that sent the markets into freefall. Everyone contributed to the price drops: humans and machines.

In this case, wouldn’t it have made sense to close the market and wait until everyone was back on their feet? That idea was floated.

Thankfully no-one’s talking about that any more – it would have been catastrophic. This debate is tied to the emotions and fear that arise in the face of volatility. Faced with these continuous losses – sometimes more than 10% of the value of the indices – some people think it’s better to stop everything and pause to take a breath. But if you close the market, then you are faced with the problem that you have to re-open one day, and that’s an enormous leap into the unknown.

Furthermore, catastrophes could happen while the market is closed. Companies that need cash need to be able to sell their assets. If there’s no exchange for them to do so, then you’re just compounding the initial problem with a liquidity crisis. The economy really needs an exchange system during times of crisis. And even though volatility was very high in this crisis with truly brutal drops, the markets worked as intended. The system did not fail.

Now that prices are low and several countries have passed the peak of the epidemic, is now a good time to purchase shares?

There are a few gems on the market. The stock prices of extremely solid companies have been battered by the crisis. One such case is Apple, which, for example, has an incredible war chest. Personally, I purchased shares in ABB, assuming that the industrial sector will take off again. I also don’t think this is the end of commercial aviation. The big airlines will certainly be saved. There are real opportunities out there and I’m not alone in that thought. We are currently drowning in requests to open accounts: nearly 1,000 per day, compared to 100 to 200 at the end of last year.

Many of these new clients thought that the market was too high over the last three years. People would say the same thing to me over and over again: I don’t want to enter the market now because I’m afraid it will undergo a correction. We can now say that the correction has occurred... Many people believe that now is the moment to get involved, and that explains some of the success that we’re currently experiencing.

 

“We need proximity. That is currently impossible and it’s heartbreaking.”

 

What are the industries and companies that will emerge from the crisis as winners?

Given that the market is oversold, all sectors will be positively impacted as soon as the economy picks up again. Post-crisis, industries such as pharma and more generally those linked to healthcare will record growth. And of course, the company that produces the vaccine will be one of the big winners.

Is investing in cryptocurrencies a good option?

We give cryptocurrencies a hard time, but they do have a role to play. The fact that they aren’t disappearing after the crisis is proof of that. When bitcoin started to fall, everyone said right away that this was the end, that only a nation state could keep a currency afloat. But gold also fell significantly during the crisis. In actual fact, it was the sudden need for liquidity from many investors that drove the cost of these assets down.

I imagine that this is the most unexpected crisis that you’ve had to manage in your career...

I would never have imagined that such a thing would happen to us. It’s a nightmare. And even now when I wake up in the morning, I sometimes struggle to believe it’s happening. But I tell myself that all crises have an end. Despite everything, we have lots of data that shows that this type of infection is controllable. After a stagnation phase, the virus will subside. This crisis will end and we will be able to go back to our lives interacting with people, going out and having parties. That gives me hope.

THE SOUL OF A PILOT

An approachable boss and close to his employees, Marc Bürki has been in the driving seat of Swissquote Bank for almost 25 years. The company he set up in 1996 with Paolo Buzzi – the current CTO of the group – established itself as the undisputed Swiss leader in online banking services. Listed on the Swiss stock exchange since 2000, it today employs over 700 people. In 1990, the two friends had already set up Marvel Communication, a company specialising in software and web applications dedicated to the world of finance, thus creating the foundations of the current company. Outside the hours spent at work at the company in Gland (canton of Vaud), Marc Bürki has also been on the ETH Board since 2017. Passionate about planes, he owns a Pilatus PC-12 aircraft that he has been flying himself for many years. One way of satisfying his curiosity and quenching his thirst for adventure, both as strong as ever.

 
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