Orcel Exit Adds to Pressure on UBS as Succession Takes Spotlight

(Bloomberg) -- For months, Sergio Ermotti has been under pressure from investors to show how UBS Group AG will stay ahead of the competition. The departure of a top lieutenant just made that harder.

The surprise defection of investment banking head Andrea Orcel’s to Spain’s Banco Santander SA leaves the chief executive officer of the world’s largest wealth manager bereft of a key partner. The two were instrumental in executing the bank’s envied turnaround of its securities unit, while the loss may add to calls for clarity on who might succeed Ermotti.

“We are disappointed with Andrea Orcel leaving UBS as we rated him as one of the best investment banking heads in Europe,” JPMorgan Chase & Co. analysts Kian Abouhossein and Amit Ranjan wrote in a note to investors. “The potential CEO succession within UBS in the long-term is not very obvious to us at this point.”

Ermotti has run UBS since 2011, making him one of the longest-serving CEOs of a major European bank. He’s overseen a sweeping tilt toward wealth management that became a blueprint for rivals. But as banks such as Credit Suisse Group AG start to close in, some investors have approached UBS to ask about the lackluster share price performance. A buyback announced in January has done little to reinvigorate the stock and a plan to merge the two wealth management business was seen as lacking detail.

UBS fell 0.3 percent at 2:43 p.m. in Zurich trading, while Santander’s shares rose 0.5 percent in Madrid.

Orcel is the second top executive to leave in less than a year -- former wealth management chief Juerg Zeltner left in December -- leaving the bank with few obvious contenders for the top role as investors are pushing for fresh ideas. Chairman Axel Weber said while he regretted Orcel’s move, UBS has deep bench of talent. Weber previously said that he and Ermotti would like to stay in their roles through 2022.

“While we do regret seeing him leave, it is witness of the fact that we have a very strong talent bench,” Weber said in an interview Wednesday with Bloomberg TV’s Matthew Miller. “We are very proud that our executives are picked to lead other banks -- its a verdict of the strength of our talent bench. We are not worried about our talent bench, we continue to evolve our talent bench.”

Among the most likely CEO candidates remaining are the two heads of wealth management, Martin Blessing, the former Commerzbank CEO, and Tom Naratil. Blessing joined UBS in 2016, initially as head of personal and corporate banking. After being promoted the following year to lead the wealth management unit, he was widely seen as top contender for the CEO job. When Ermotti merged Blessing’s unit with the U.S. wealth management run by Naratil, the two became co-presidents of the new business.

Different Models

The merger combined two very different models, with the U.S. business being a brokerage. It’s led to little in the way of savings so far and left investors wanting to know more about the integration.

While Blessing may still be a top contender, analysts on Wednesday said that Orcel’s departure highlights the question of succession planning for the CEO. Apart from Chief Financial Officer Kirt Gardner and the two co-heads of wealth management, UBS’s executive board is not well known to investors, Citigroup Inc. said.

“While we don’t expect CEO Sergio Ermotti to step down in the near future, Mr. Orcel’s departure will no doubt lead to questions around internal succession planning," Citi analysts Andrew Coombs and Nicholas Herman wrote in a note to clients. “The rest of the executive board and the senior management team are all still relatively unknown to investors.”

The same goes for two new co-heads of the investment bank. UBS promoted Piero Novelli, currently executive chairman of corporate client solutions, to focus on advising clients on capital raisings as well as mergers and acquisitions. Like Orcel and Ermotti, Novelli is a former Merrill Lynch employee. He joined UBS in 2004, overseeing global mergers and acquisitions, and returned in 2013 after a stint at Nomura Holdings Inc.

Robert Karofsky, global head of equities, will oversee trading. Karofsky helped UBS expand in equities and prime brokerage since joining in 2014 and previously worked at AllianceBernstein, Morgan Stanley and Deutsche Bank AG.

“There is no individual who is ideally placed to run the investment bank on his or her own," said Matthias Schulthess, a partner at Schulthess Zimmermann Executive Search in Zurich. “None of the appointed candidates has managed a whole investment bank like Orcel has done.”

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