Sergio Ermotti has to deliver. Today was the first payday. UBS’s results of almost one billion net profit have turned out better than expected.
All’s well that ends well? It’s too early to tell. Up to now, Ermotti has been delivering exactly what is required of him. However, for lasting proof that UBS has a future under his leadership more is needed. The banker from Ticino knows that now is the time for UBS to look good.
The future can wait, it’s the current impression that counts. But this strategy can back-fire. Under Ermotti’s regime, UBS has become a giant construction site. While the bank is operating at full steam, it is being completely re-built – from a casino trading house, to a leading global asset manager.
There is so much carving and digging going on, that observers have lost sight of the bigger picture. And the man, who should be holding the strings in the back room is going on a rally for a few weeks.
The funny thing about this reconstruction of the century is that the great change away from risky trading operations towards supposed stable Swiss-made asset management activities should be happening under the watch of committed investment banker Ermotti, of all people.
It has yet to be seen how seriously the strong man at the helm of Switzerland’s largest bank is taking the task. For there are doubts when you look closely at Ermotti’s conspirators. His closest allies all come out of the same kitchen.
Investment bank CEO Andrea Orcel and head of UBS America, Bob McCann are, like Ermotti former Merrill Lynch stars.
But they don’t just have that in common. All three have had similar careers; they grew up in stock-broking. And stockbrokers are salesmen. Up and down, buying and selling – that is their world.
By contrast, specialists in the interest markets understand context. They have to grapple with interest rates as they affect price of money and the future – their impact on the large balance sheet is part of their daily bread.
To sell well means telling a convincing story; and Ermotti and his Merrill Lynch boys are very good at doing that.
While at Merrill Lynch, the bank with the bull logo, Ermotti & Co practised the most aggressive investment banking, even by Wall Street’s standards. In the end, Merrill crashed into the wall and had to be rescued by the giant Bank of America.
Merrill’s downfall did not affect the old connections. The Merrill boys trust each other to this day – they encourage each other, thereby fueling their careers.
Today it is these three testosterone-fuelled UBS stars who are steering the whole bank according to their whims.
They need fear no resistance. UBS President Axel Weber, an ex central banker is leaving the three conspirators to their own devices. Weber loves the pulpit and is happy to leave operations to his management team.
Former Merrill people are even making themselves felt amongst wealth management, usually a Swiss specialty. The family office for the very well-heeled is led by a ex top Merrill man and a close Ermotti confidant.
Salesmen like Ermotti know all about the importance of appearance and reality. Image is important, the rest comes later.
Ermotti’s predecessor Oswald Grübel belonged to another calibre. The German with a Swiss mentality spent virtually his whole career in the interest rate business. This enabled him to assess the big connections between balance sheet and world development.
Grübel was also known for being a trader who was capable of completing deals in split seconds; nevertheless he knew all about complex banking matters, since he learnt about trading from the interest rate side of things rather than from share trading.
The effect of Ermotti’s strategy based on good selling and glamour is particularly visible in the back office. Here, where real banking takes place on a daily basis, asset stripping of historic proportions is taking place.
IT, human resources, finance and risk management are being cut up, shifted and re-built. Thousands of jobs are being cut and no stone is left unturned.
So, the fact that Ermotti’s UBS has managed to earn 1 billion after tax in the first quarter and has attracted 24 billion in new money can only be seen as a good performance.
However, the Swiss gambler is clever enough to know that the future is uncertain.
Ermotti wrote today, with an eye on the uncertain international situation: “It would make further improvements in prevailing market conditions unlikely and would consequently generate headwinds for revenue growth, net interest margins and net new money.”
Smart Ermotti has already prepared an excuse in the event that his “big story” ends badly.