Ermotti’s UBS legacy leaves space for a third act
Why would someone like the Swiss banker step away just when things are about to get fun?
Boomerang executives are normally a sign of a company in crisis. Sergio Ermotti’s return to UBS in 2023 was a classic case, with the Swiss banker coming back to lead the difficult integration of Credit Suisse in the biggest bank deal since the 2008 financial crisis. As he prepares to take flight again, however, Ermotti may have set himself up for a third stint that begins on more positive terms.
Ermotti is planning to step down as chief executive next year. The foursome of internal candidates fighting to replace him includes wealth management co-heads Iqbal Khan and Robert Karofsky, chief operating officer Bea Martin and asset management chief Aleksandar Ivanovic. Already, however, people close to the bank whisper that Ermotti could be back again within a few years to replace Colm Kelleher as chair.
His performance bolsters the case. The integration of Credit Suisse has, so far, been surprisingly smooth, while UBS’s wealth management franchise remains the envy of European rivals. Plans to boost profitability in the US by getting a full banking licence probably won’t pay off by the time Ermotti and Kelleher are holding job interviews — a shame for Americas head Karofsky — but performance should improve over time.
A share price increase of 114 per cent since Ermotti was announced as second-time CEO is actually an underperformance relative to an index of European bank stocks, but the weakness was largely due to aggressive Swiss regulatory proposals that were outside his control. The Swiss government wants UBS to raise tens of billions of dollars of extra capital to reduce the risk of a future crisis.
The next chief will have to deal with implementing the final changes. Even a compromise solution that limits the cost to UBS will be a challenge at a time when most international rivals are benefiting from looser rules. But at least the uncertainty should be largely over, making it an execution issue rather than a diplomatic fight.
Meanwhile, the strong state of UBS’s underlying businesses will give it more freedom to pursue the sort of exciting plans that were previously off the table, such as trying to speed up US expansion with a big acquisition. That could make another Ermotti return more likely: investors would surely be reassured to have someone around with his experience of large integrations.
Less ambitious executives might prefer to follow a combined 13 years in charge with a permanent vacation. But after a decade and a half of restructuring, UBS could soon be on the front foot for a change. And the original purpose of a boomerang, after all, is for hunting. Why would someone like Ermotti retire just when things are about to get fun?