The success of Credit Suisse's cost-cutting story so far is derived from identifying non-strategic businesses and closing those down completely, hence saving money from systems and people, rather partially downsizing.

«Italian and Spanish banks have largely outperformed the European market year-to-date»

Most of the times when you do a partial downsize, you tend to retain fixed costs while losing revenues. Investments in technology are not compromised by cost savings, they are mostly funded by internal efficiencies. Deutsche Bank now needs a clearly defined strategy, a serious and definitive commitment by all parties.

Fears of inflation are increasingly coming up, rising interest rates are paving the way and margins in banking business are steadily declining. Why are you still positive about European financials?

I was positive on banks already at the end of 2017 and they did very well in January thanks also to a rebound of Global Yields. Most of Italian and Spanish banks have largely outperformed the European market year-to-date.

«No bank capital increase has been announced year-to-date for the first time in many years»

I am now even more positive ahead of numbers as the base for the outperformance has further improved and market positioning has substantially decreased leaving space to a potential surprise. Playing the bank sector is actually the most effective hedging tool in a rising yields scenario.

On top of this, banks have been prudent about their guidance for 2018, though executing well on cost and asset growth. It is a perfect setup for an investor who wants to buy good quality banks – those focused on capital allocation – at very reasonable valuations.

It is also important to note that no bank capital increase has been announced year-to-date for the first time in many years and mergers-and-acquisitions is going to be an important theme, especially in Spain and Italy, leading to some further positive consolidation.

What are your favorite bank shares?

We like Santander in Spain and Intesa in Italy but also UBS. UBS' markets business should be strongly outperforming peers given their exposure to both equities and foreign exchange, which have held up well unlike credit and rates, which suffered in March.

«Is this the beginning of a new trend?»

Morgan Stanley has said that the wealth management division saw strong transaction volumes in January and February, which bodes well for UBS’s wealth management business in the America.

The Swiss banks have become known and successful thanks to its «Swiss banking» business model. To what extent must this business model change so that it can continue to be used as a seal of quality?

The question we should ask is to what extent this business model change must so that it can continue to be used as a seal of quality?

We believe that Switzerland remains one of the leading countries in wealth management, accounting for 24 percent share of the global cross-border private banking market. Despite increased regulation and lower interest rates, the Swiss Banking model is still solid and currently shifting to quality and expertise. 

As of last May, banks in Switzerland managed total assets of 6.8 trillion Swiss francs, an increase of 277 billion francs, or 4.2 percent more compared to December 2016. Interestingly, UBS CEO Sergio Ermotti said recenlty that Switzerland needs corporate banking, not just wealth management. Is this the beginning of a new trend?

Or, is Swiss banking, as we knew it, at its end?

The Swiss banking business model is facing increasing competition from leading Asian financial centres such as Hong Kong and Singapore. We believe Switzerland should leverage locational factors and reputation in order to attract further value along with promoting innovation and technological progress, for example in the digital banking sector.   

Alberto Tocchio is the Chief Executive Officer and investment head of Lugano-based Heron Asset Management. The 44-year-old graduated with a degree in economics from Carlo Cattaneo University in Castellanza, Italy. He started his career in London at Kairos Investment Management, where he spent 17 years. Tocchio left the firm, now owned by Julius Baer,  last year. He has been in his current role since last August.