UBS Group CEO Sergio Ermotti: The Man to Call in Troubled Times

Named the most successful manager of a publicly traded Swiss company, parting UBS Group CEO Sergio Ermotti (60) deftly steered the country’s largest banking institution for nine choppy years. His was a ride that included the aftermath of a rogue trader affair which caused the resignation of his predecessor (and a loss of $2.3 billion), the tail end of the Great Recession, and now a pandemic. Along the way, Ermotti also had to contend with the unwinding of the Libor Scandal with UBS ultimately agreeing to pay US, UK, and Swiss regulators a grand total of $1.5 billion for its role in the manipulation of the benchmark interest rate.

Though an investment banker at heart, Ermotti pivoted UBS away from more risky endeavours to concentrate on wealth management, stemming the steady client outflow that had long plagued the bank. The strategy worked like a charm – particularly on the ultra-high net worth individuals and large family offices UBS sought to engage. Pre-tax profits swelled as did the bank’s share price.

However, Ermotti last year suffered his own ‘annus horribilis’ with investment banking languishing everywhere but in the United States as all remained eerily quiet on the mergers and acquisitions front and capital markets languished in a mind-numbing, and profit-eating, limbo. Not usually fazed easily, Ermotti nonetheless put UBS on an immediate crash diet, freezing new hires and delaying the implementation of IT projects for a cost saving of some $300 million – about 5 percent of total annual corporate expenses. A S1bn share buyback programme was put on ice as well.

To top off the dismal year, a French court imposed a €4.5 billion (€3.7bn in fines plus €800m in damages) on UBS for helping clients evade taxes. Whilst the lengthy appeals process works its way through the justice system, the bank has already set aside a €500 million litigation provision. The ruling cast a shadow over Ermotti’s tenure at UBS.

Still, after a most dreadful 2019, Ermotti could, and did, say that UBS remained one of a select few European banks with share prices trading above tangible book value – even after the stock price had dropped an unwarranted 29 percent in 2018.

More a crisis manager than a CEO on cruise control, Ermotti has displayed a commendable awareness of changing global dynamics, positioning and repositioning his bank to avoid headwinds and maintain the vast organisation on an even keel. That was no mean feat. The current pandemic has caused a dramatic increase in market volatility which, Ermotti said during a call with analysts, makes it rather difficult to see how things will develop for the remainder of the year.

Still, as a testament to his ability to weather successive storms, the UBS chief last year managed to extract a 10 percent increase in pre-tax profits at both the retail bank and the asset management division – boosting overall group profit to $1.4 billion – whilst revenues retreated slightly to $7.5 billion. However, analysts would like to see a performance improvement at the all-important wealth management unit which has suffered from sizeable withdrawals and a customer-driven shift to lower margin assets.

Using his lofty perch to voice his personal opinions on a range of topics, Ermotti periodically caused raised eyebrows such as when he lashed out in a surprisingly emotional manner at financial regulators trying to limit executive pay. He went as far as to suggest that their crusade is fuelled by ‘envy and frustration’. Ermotti also repeatedly wondered out loud why bankers are being targeted for scrutiny whilst executives in sectors such as private equity and tech are not: “People made a choice to do good for society while also getting their desired level of compensation.” He went on to suggest that executives in the financial sector would ‘do something else’ should their pay fail to measure up to their talent.

Though tipped as the ideal successor to UBS Group Chairman Axel Weber, Sergio Ermotti in March announced that he had joined the board of insurer Swiss Re and will succeed Chairman Walter Kielholz as of next year. His contract with Swiss Re does not allow for dual chairmanships.