UBS ‘obsessed’ with costs as CEO weighs next steps
UBS Chief Executive Officer Sergio Ermotti, under pressure to lift a stock that has trailed peers for a year, vowed to take a close look at costs in every corner of the bank as he prepares to unveil new targets.
In a wide-ranging interview in which he also discussed succession planning and the Hong Kong protests, the CEO struck a critical tone about the results at the firm’s investment bank this year. But he made it clear that all businesses — including the giant wealth-management operation that just hired a new co-head — will be scrutinized for potential cost cuts and allocation of resources before the strategy update in January.
“It’s not just an investment bank issue, it’s across the board,” Ermotti, 59, said in the interview at UBS’s New York offices. “Nothing is really untouchable.”
The architect of UBS’s pivot from investment banking to wealth management, Ermotti is seeking to maintain an edge as competition for wealthy clients, negative interest rates in Europe, an expensive legal dispute in France and the threat of a global recession weigh on earnings. He recently shook up the management board and restructured the securities unit, which underperformed rivals last quarter.
“We can do better, and we’re going to do even more to respond to the market conditions,” the CEO said. “We are obsessed about” costs.
Shares of UBS, the world’s biggest wealth manager with $2.5 trillion under management for rich clients, have declined 12% over the past year, a period in which rival Credit Suisse was little changed.
Earlier this year, UBS contemplated combining its asset manager with that of German rival Deutsche Bank, and even considered a full-blown mega-merger of the two lenders that would have created Continental Europe’s biggest financial institution.
While the informal talks fell apart, Ermotti said he’s “considering everything” including mergers, acquisitions and divestitures as he weighs UBS’s strategy for the next three years.
“Everything is up for discussion all the time,” he said. “We can’t rule out anything.”
One headache for the CEO this year has been the investment bank, which he scaled back radically since taking over, jettisoning much of the fixed-income unit to produce more steady returns with less capital. That left UBS more reliant on equities trading, which did poorly last quarter, as well as deal advisory, which is more geared toward Europe and Asia and also underperformed. All told, operating profit at the investment bank slumped 62% from a year earlier.
“When I look at the first nine months of the year, I am not pleased,” Ermotti said. “If market conditions don’t improve, we need to be at the forefront of putting the bar higher in changing how we do investment banking.”
Big shifts have already started.
Ermotti revamped leadership at the unit last month under Rob Karofsky and Piero Novelli, who took over last year following the departure of Andrea Orcel. Their plans may include hundreds of job cuts, people familiar with the matter have said. The overhaul will save the company some $90 million annually. The investment bank will be reshaped to remove regional focuses and streamline into two units, global banking and global markets, and have an added emphasis on how it can support wealth management client needs.
In the bigger wealth management unit, Ermotti recently hired Iqbal Khan from Credit Suisse to co-head the business with Tom Naratil. The two are now tasked with reviewing the overall strategy. While Ermotti said he doesn’t see a drastic change in direction, he does expect them to come forward with ideas to adapt to changing needs of clients and market conditions.
“We want to push the bar to the next level and make it very challenging for our competitors to compete,” he said.
With much of the growth in its wealth management business coming from Asia, Hong Kong is an important business center for UBS. The protests there have led some clients to open accounts in other geographic locations, but they haven’t yet funded those new accounts, he said. No UBS employees have been relocated and that’s “not even a scenario that we contemplate,” he said.
“It’s not really changing the way we do business, but of course it has had an impact on sentiment,” Ermotti said. “I don’t expect a resolution very soon.”
Ermotti was named to lead UBS in late 2011, when it was still reeling from losses leading out of the financial crisis. His tenure was marked by a bold move to slash thousands of jobs and exit businesses, and within four years, he was stunning Wall Street. But the more recent environment has posed a fresh set of challenges.
As he enters his ninth year on the job — a record at UBS — he’s had to deflect questions about succession that arose after the departure of Orcel last year and wealth management head Juerg Zeltner a year earlier.
He shook up his board in August to quell such concerns, with two executives leaving and others, including Suni Harford and Sabine Keller-Busse, being elevated. Khan, 43, strengthens the bench of potential contenders to become the bank’s next leader.
Ermotti declined to comment on executives and on his timeline for staying at the top of the bank.
“I’m not obsessed about succession,” he said. “This discussion about succession has been going on since the year after my fifth anniversary, since I surpassed the average life of a CEO at UBS.”