UBS’s Ermotti Says Reviving Payouts Best Part of Reign as CEO

(Bloomberg) -- When Sergio Ermotti took over as chief executive officer at UBS Group AG nine years ago, the Swiss bank was under siege.

UBS was repairing a reputation tarnished by massive losses in the financial crisis that had forced it to take a government bailout and reeling from a trading scandal that cost $2.3 billion and drove out Ermotti’s predecessor.

Ermotti, who hands the job over to former ING Group NV CEO Ralph Hamers Nov. 1, led a pivot from volatile investment banking to wealth management, turning UBS into a world leader that oversees $2.5 trillion in assets.

Still, he leaves his successor with plenty to do. A potential $5 billion dollar fine hangs over the bank for allegedly helping French clients evade taxes, costs are consistently higher than many peers and rivals have been poaching entire teams of wealth managers. UBS also has to navigate its return to paying dividends after a de-facto ban on payouts for Europe’s banks.

Ermotti in April becomes chairman of Swiss Re, one of Europe’s largest insurance and reinsurance companies. The following are Ermotti’s departing words in an interview with Bloomberg’s Manus Cranny, edited for clarity and length.

Do you enjoy taking risk?

I enjoyed it when I was younger, probably more than today. I always felt that the vast majority were thought through and calculated. From time to time you need to let your stomach drive the risk decision a little bit more, but the vast majority were driven by risk assessment, and most importantly risk and reward assessment.

How do you want your era to be remembered?

I stabilized the bank, further put the bank into a new path of strategic clarity, and it now has capital strength, solidity and operational resilience. I reinforced the culture. I hope I will be remembered for those things.

As you leave UBS, what are you most looking forward to?

I am looking forward to being away from Zurich, from work, from everything. Frankly, I need a quite brutal shutdown and disconnect. I will miss the stamina that comes with the job and the excitement, but I need to be very remote and disconnect from this reality. Covid-permitting, I will go to the Maldives.

The detractors would say you should have cut costs harder, deeper and more aggressively. What’s your response?

I never say that we are perfect in costs. We are reducing costs every year by around $500 million and that gets reinvested in technology and new initiatives. When you are running a $24 billion cost base, you always have to find some things to cut costs on.

Our cost-income ratio is structurally higher than some of our peers but we also have the highest return on risk-weighted assets in the industry by far. The people who focus on the cost-income ratio seem to forget that. This trade off allows us to have an efficiency curve, a combined ratio between the way we utilize our capital and a cost income ratio that makes total sense for shareholders.

What was your best day on the job?

In 2015, when we closed the journey of the restructuring. We were able to start to give back a significant amount of capital to shareholders; that was a good feeling. But also a few weeks ago, when I learned that 86% of my colleagues feel very proud about working for UBS.

When Andrea Orcel, the former head of the investment bank, left, how was it to lose your wingman?

When Andrea told me he was thinking about leaving, I had mixed feelings. I was very sad for our personal relationship but also for the bank to lose such a talented person. On the other hand, I was happy because I saw him really growing into a next level and having a fantastic opportunity. It is always very difficult to assess those moments.

How much are you driven by remuneration?

I look at the people competing with me and how much they make for the same job. It is not an issue about absolute money, but I should get paid like in the market. Over the last few years, I did not do this job for money, I did it because I like it. There is no other industry that is so restrictive on pay. Not only in terms of cash and deferred compensation, but also on the conditions attached to those rewards such as financial targets, conduct, and cultural issues.

With Covid-19 raging around the world, can banks really pay substantial bonuses?

This year we are going to need to put performance and other soft factors into the equation and the most important issue is that we also pay fairly and competitively.

Did UBS miss an opportunity to appoint a female CEO?

No. I think it would have been a missed opportunity if women were not considered in the selection process. Our goal is to have at least 30%-35% females on our board of directors and on our executive board and 30% across the firm from director level up to group executive. Right now we are at around 25%. The good news is everyone in the industry is focused on it; the bad news is that it makes hiring talented women competitive.

What advice would you give when it comes to negotiating deals?

In negotiating any transactions, you need to put the client interest first. Not only is it the right thing to do, but it is the best way to create a sustainable relationship and reputation in the market that will lead to more transactions. In some cases, it means also saying no, or advising against doing it. It is important to be able to say no.

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