Ermotti flies in to pilot complex UBS deal

IFR 2477 - 01 Apr 2023 - 07 Apr 2023
6 min read
Americas, EMEA
Steve Slater

UBS has rehired Sergio Ermotti as chief executive in a surprise move, bringing back its former CEO to steer the Swiss bank's big and complex takeover of Credit Suisse. Ermotti will start on April 5.

Ermotti was group CEO of UBS for nine years from 2011 to October 2020 and will take over from Ralph Hamers. The change marks a swift and decisive move by UBS chairman Colm Kelleher after some concern that Hamers faced a challenging few years of tough and difficult integration, especially in its investment bank.

"In a nutshell, investors, our shareholders by and large, see significant upside in this transaction, but they are very concerned about execution risk and we have a lot of execution risk here," Kelleher told reporters on a conference call on Wednesday. "It was the opinion of the board that for this massive integration exercise, Sergio would be the better pilot for this next voyage of UBS."

Kelleher said he called Ermotti on March 20, the day after the takeover was announced, and his return was soon agreed. "That was the decision the board came to and it was no reflection on Ralph's capabilities. It's just that we felt we had a better horse," Kelleher said.

There was speculation Ermotti could have been parachuted in to run Credit Suisse if Swiss authorities had opted to keep the bank independent, so he had been close to the situation. Former UniCredit CEO Jean Pierre Mustier and current UniCredit CEO (and former UBS banker) Andrea Orcel were also considered, but Ermotti was always seen as first choice, industry sources said.

Ermotti is chairman at reinsurer Swiss Re. He restructured UBS after the 2008 financial crisis, including shrinking its investment bank and putting its wealth management business back at the heart of the bank. UBS said that experience and his understanding of the Swiss banking industry made Ermotti the right man to lead the integration.

"Without a doubt, he is the right person for the job ... He's the guy you want to right the ship as the executive and then become the chairperson for the longer term," said Ashley Pittard, head of global equities at Pendal, a UBS shareholder. "Sergio was in the trenches during and post the global financial crisis when UBS was in a lot of trouble. He's got the runs on the board," Pittard told Reuters.

Ermotti gave few clues on his plans on Wednesday and asked for patience. But he is expected to act quickly and hard in shrinking Credit Suisse's trading assets, industry sources said.

UBS has a considerable capital buffer, so can mark down unwanted positions far quicker than Credit Suisse was able to do. Ermotti is likely to opt to keep much of Credit Suisse's advisory and capital markets teams and activity with financial sponsors, but is unlikely to take its leveraged finance operations, the sources said.

A former CEO of ING, Hamers will remain at UBS as an adviser for a couple of months. He has been CEO since November 2020 and was a surprise choice when he was picked.

He was tasked with leading UBS's digital banking and sustainability push, but the takeover of Credit Suisse radically changed the task and Hamers underwhelmed analysts and investors on a conference call held hours after the deal was announced on March 19. He had had little sleep in the days running up to the deal, stumbled with several answers and appeared uncomfortable, and it was clear Kelleher was running the deal, industry sources said. They said the change in CEO was no surprise, but the speed of the switch was.

Next chapter

UBS bought Credit Suisse for SFr3bn (US$3.26bn) in a shotgun deal orchestrated by Swiss authorities and approved by other major regulators in an effort to stop a banking crisis spreading.

The deal marks the biggest bank transaction since the 2008 financial crisis, and the first time one global systemically important bank has bought another since the G-SIB designations began in 2011 for the world's 30 biggest and most complex banks.

UBS has said while it did not seek to buy Credit Suisse it sees the deal as an opportunity to accelerate its growth, particularly in the US and Asia. It is expected to try to complete the deal before the end of June.

Ermotti indicated it was the sort of challenge he was looking for when he left UBS.

"I always felt that the next chapter I wanted to write back then was a chapter of doing a transaction like this one," he said on the conference call.

He said banking and wealth management were a scale game and dismissed concerns it would make UBS too big to fail. "I always say that for me the debate nowadays is not too big to fail. It's rather too small to survive," he said.

UBS and its executives have not given any details on the likely scale of redundancies from the deal.

Kelleher, a former long-time Morgan Stanley executive who joined UBS as chairman in April 2022, said imposing UBS' culture on the enlarged bank is a crucial part. "We do not want to import a bad culture into UBS ... There are clearly parts of Credit Suisse that have had a bad culture," Kelleher said.

He said UBS would look to "lighten up" in the risk-taking parts of the investment bank. "Having said that, there are clearly talented people in the investment bank, particularly on the banking side we would be interested in having, but we have to put everybody through a culture filter to make sure that we do not import something into our ecosystem that causes issues," Kelleher said.

UBS shares rose 7% over Wednesday and Thursday to SFr19.025, valuing it at US$73bn and putting it just below BNP Paribas as Europe's second-biggest bank behind HSBC.