LONDON, March 29 (Reuters Breakingviews) - UBS (UBSG.S) could not depend on a relatively inexperienced chief executive as it embarks on the biggest banking merger of the decade. That’s the best explanation for why Chair Colm Kelleher on Wednesday said the Swiss bank was replacing CEO Ralph Hamers with erstwhile boss Sergio Ermotti. Though the move violates several corporate-governance red lines, it improves the group’s chances of successfully absorbing stricken rival Credit Suisse (CSGN.S).
Bringing back the CEO who ran UBS for nine years until his departure in late 2020 is an indictment of the bank’s executive ranks and highlights the scarcity of battle-tested talent in European banking. The Swiss national, who hails from the southern canton of Ticino, did not develop a plausible heir during his tenure at UBS, prompting the board to take a punt on ING (INGA.AS) boss Hamers. One risk for shareholders is that Ermotti again struggles with succession planning, or clashes with Kelleher, whose role he previously coveted.
Still, there are plenty of examples of successful boomerang CEOs, including Steve Jobs at Apple (AAPL.O) and Bob Iger at Walt Disney (DIS.N). UBS has a near-precedent in Oswald Grübel, who parachuted in to run the Swiss bank after its near-death experience in the 2008 financial crisis, having relatively recently been in charge of Credit Suisse.
Hamers’ position looked shaky even before the Credit Suisse deal. UBS cancelled his $1.4 billion takeover of financial-technology group Wealthfront while his penchant for buzzwords, as evidenced by the corporate tagline “reimagining the power of investing”, was hardly reassuring. Nor was his hesitant delivery in a call with analysts after announcing the Credit Suisse deal.
Ermotti ticks several important boxes. First, he has successfully slashed his way through an investment bank before. UBS’s October 2012 strategy, dubbed a “strategic acceleration from a position of strength”, saw Ermotti pledge to axe $90 billion of risk-weighted assets in the investment bank, or 57% of the total, mostly in fixed-income trading. By the following summer, the bank had clawed its way back up to a valuation that exceeded its tangible book value, a sign that investors believed it could earn a respectable return on equity.
UBS shareholders will hope he can repeat the exercise with Credit Suisse, which comes with a bloated and recently unprofitable trading and dealmaking division. Ermotti has long pushed for bank consolidation. During his previous spell in charge, UBS held talks with Deutsche Bank (DBKGn.DE) and discussed a merger with Credit Suisse.
Finally, there’s his passport. Putting a Swiss national in charge could help defuse anger with the Credit Suisse rescue, which involved the government waiving competition rules and shareholder rights, and is likely to lead to thousands of job losses in Switzerland. A majority of the alpine nation’s citizens say they disagree with the deal, according to polling reported by Swissinfo. Bringing back Ermotti is far from ideal, but it reduces the risks of UBS being dragged down by its mega-merger.
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CONTEXT NEWS
UBS on March 29 said Sergio Ermotti would return as chief executive, replacing Ralph Hamers.
Ermotti, a Swiss national, led the Swiss bank for nine years, departing in late 2020, and is currently chair of Swiss Re. He intends to step down from the insurer shortly after its annual meeting on April 12.
Shares in UBS were up 2.7% to 18.23 Swiss francs as of 0802 BST on March 29.
