Nov. 15 (Bloomberg) -- UBS AG, Switzerland’s biggest bank, said its board of directors named Sergio Ermotti as permanent chief executive officer, less than two months after starting a search to replace Oswald Gruebel.
Chairman Kaspar Villiger, 70, will step down at the annual shareholders’ meeting in 2012, a year earlier than planned, to accelerate the handover to Axel Weber, 54, the Zurich-based company said in a statement today. Ermotti, 51, was named as interim CEO after Gruebel, 67, resigned on Sept. 24 following a $2.3 billion loss from unauthorized trading at the bank.
“The nomination of Mr. Weber as chairman of the board and the appointment of Mr. Ermotti as group CEO will bring essential stability and clarity to UBS,” Villiger said in a statement. “It will enable the bank to master the many current economic challenges and regulatory changes facing it, and will ensure its success over the long term for clients, shareholders and employees.”
Ermotti must oversee a plan, started by Gruebel, to shrink UBS’s investment bank after efforts to rebuild the unit following a record 2008 loss stalled amid stricter regulation and Europe’s sovereign debt crisis. Ermotti, who will announce details of the reorganization in New York on Nov. 17, has yet to convince investors he’s the right man for the job, said Mediobanca SpA analyst Christopher Wheeler.
“The proof of the pudding will undoubtedly be in the eating as far as he’s concerned,” said Wheeler, who has an “underperform” rating on UBS. “He’s neither fish nor fowl. He’s not a high-profile outside hire with a very definitive and visible track record. And he’s not a long-term staffer who knows the inside and out of the firm very well.”
Gruebel, who came to UBS with the moniker “Saint Ossie” after helping to restore profit at rival Credit Suisse Group AG, hired Ermotti after he resigned from UniCredit SpA, Italy’s biggest bank. Ermotti, who had lost out to Roberto Nicastro for the role of general manager, the second-highest executive position at UniCredit, joined UBS on April 1 as CEO and chairman of Europe, Middle East and Africa.
Ermotti was probably the board’s “plan B” all along in case Gruebel became unavailable to lead UBS, said John Purcell, founder of executive search firm Purcell & Co. in London. The two-month search was probably just aimed at satisfying investors, he said.
“If they have conducted the process with due fairness, it’s a classic example of Swiss efficiency,” Purcell said.
The management style of Ermotti, who was born in the Italian-speaking part of Switzerland and has a passion for soccer, may contrast with that of Gruebel, who was criticized by Swiss politicians for his blunt comments. Ermotti, who has moved to Zug, a canton near Zurich with one of Switzerland’s lowest tax rates, from his hometown of Lugano, told television channel RSI in an interview aired Nov. 6 that it’s important for him to spend weekends with his wife and two sons.
At UniCredit, where he started in December 2005 as the head of the markets and investment banking division, Ermotti wanted to compete with the world’s top securities firms. His 2006 strategy of building up fixed-income, structured credit and structured finance businesses initially boosted earnings. Two years later, the subprime crisis forced Ermotti to retreat to UniCredit’s home markets and reduce risk-taking by scaling down proprietary trading, structured credit carry trades and global fixed income.
With corporate banking added to his responsibilities, Ermotti’s target was to boost returns at the combined division. The corporate and investment banking business’s goal for risk adjusted return on risk adjusted capital, a measure that represents the value created per unit of risk taken, was to reach 11.5 percent in 2010 compared with 6.5 percent in 2007. That return was a negative 1.3 percent last year.
UBS also wants to boost the return on equity of its investment bank by reducing risk-taking and scaling down the fixed-income business that holds the most risk-weighted assets.
UBS’s new strategy “will be centered on our leading wealth management businesses and our position as the strongest universal bank in Switzerland,” Ermotti said in a statement today. “A focused, less complex and less capital-intensive investment bank and our asset management business are also key elements for growing our wealth management franchise.”
The bank may be able to boost the securities unit’s return on equity to 17 percent by 2013 by cutting staff and through scaling down risk-weighted assets by about 70 billion Swiss francs ($77 billion) on top of the 100 billion-franc downsizing UBS had already announced to prepare for new Basel III rules, JPMorgan Chase & Co. analyst Kian Abouhossein estimated. Without such a reorganization, the unit’s ROE may fall as low as 7 percent that year, according to his estimates.
As UBS refocuses on wealth management, appointing another investment banker as CEO isn’t the ideal choice, said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets. Ermotti’s Swiss nationality and international banking experience with UniCredit and during 16 years at Merrill Lynch & Co. probably convinced the board, he said.
Ermotti was also in charge of private banking at UniCredit, which had 139.7 billion euros ($190.7 billion) of client assets at the end of last year. That’s less than an eighth of UBS’s 1.46 trillion francs in wealth management units’ invested assets for the same period. He had aimed to boost customers’ financial assets to 198 billion euros in 2010.
Getting Job Done
Ermotti’s appointment “is not a reason to get particularly bullish for the stock, but he can probably get the job done,” said Becker, who has a “hold” rating on UBS. “Holding such an important investor day with an interim CEO wouldn’t have been great either.”
UBS has gained 8.2 percent in Zurich trading since Ermotti replaced Gruebel, making it the 16th-best performer on the 46- company Bloomberg Europe Banks and Financial Services Index, which increased 6.6 percent in the period.
Ermotti, who described himself as a “lazy” student in the RSI television interview, started his banking career at 15 years old with an apprenticeship at Corner Banca SA in Lugano. His first assignment was in the markets division, which was “hectic” and appealed to him, Ermotti told Swiss tabloid SonntagsBlick in an interview last month. He later completed an advanced management program at the Oxford University.
“I never would’ve thought I’d arrive where I am today,” Ermotti told RSI. “What has brought me further is that I’ve never had the goal of becoming the number one.”
--With assistance from Corinne Gretler in Zurich. Editors: Dylan Griffiths, Frank Connelly.
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