Shortly after news of the mega merger with troubled lender Credit Suisse broke on a Sunday night, UBS chief executive Ralph Hamers found himself explaining the rationale of a deal that fundamentally upended his cautious strategy for go-it-alone growth.
The very next day, his own boss, pressured into the 3-billion-franc (about $3.25 billion) takeover by regulators around the world, reached for the phone. On the other end was Switzerland’s best known banker, Sergio Ermotti, to whom UBS chairman Colm Kelleher offered Hamer’s job on a platter.
In the midst of a crisis that toppled Credit Suisse after nearly 167 years of history, no one else but Ermotti—an avowed believer in transformational deals—was better suited to steer the new behemoth towards safer waters and limit damage to the country’s reputation as an elite banking center.
The Lugano native couldn’t say no. “I felt a sense of call to duty,” recalled the incoming UBS boss on Wednesday, hours after the bank announced the shock sacking of Hamers.
Ermotti returns to his old post on April 5 with a massive task on his plate: Integrate not just one global systemically important financial institute (G-SIFI) into another, but two archrivals at that, all the while minimizing risks to the Swiss taxpayer.
Speaking to reporters, Kelleher did not mince words when describing the enormous scale of the problem facing Ermotti, who will take over a wealth and asset manager eventually overseeing some $5 trillion in combined client funds.
“We’ve got two storied franchises coming together, a lot of pride, a lot of people who are worried; we have to tread delicately, we have to pick the right people and it will take us time,” he told a hastily arranged news conference. “One of the reasons we appointed Sergio, we’re going to be very sensitive to all these constituencies, he’s well known to both banks and he’s well-known globally.”
The 62-year-old Ermotti has worked in the finance industry his whole life. After starting out as a lowly bank apprentice in Lugano, he joined Citibank and later rose the ranks at Merrill Lynch and UniCredit, mainly in their investment banking arms. Most recently he joined reinsurance group Swiss Re, serving as chairman of the board since April 2021.
Most importantly, however, Ermotti is a known commodity at UBS. He spent nine years as its CEO, inheriting in September 2011 a bank rocked by the scandal around rogue London trader Kweku Adoboli.
Experience in shrinking risky investment banking operations
Ermotti's track record of shrinking the investment banking operations responsible for the crisis and focusing UBS on the safer, fee-driven advisory business of wealth management put the bank on course to grow its balance sheet to twice the size of Credit Suisse—all while purging it of an unhealthy appetite for risk.
In fact Ermottti’s only regret when he handed over his job at UBS in October 2020—ironically to Hamers, a Dutch national—was never getting the chance to oversee a major deal that dramatically bulk up the venerable Swiss bank.
“It would be a little bit of contradiction not to accept the job to basically execute on what I believe was the right next move for UBS,” explained Ermotti. “I always say for me the debate is not too big to fail, but rather too small to survive—and we want to be a winner,” he told reporters.
It was his transformation of UBS into a highly profitable yet risk-averse superbank, rather than his Swiss passport, that won him the right to return triumphantly to finish what he once started. And unlike other returning CEOs like Bob Iger, he has no intention of relinquishing the reins as long as his presence in Zurich is still wanted.
From the sound of things, that will likely be a while, as the board is cognizant of how highly complex and sensitive the deal is. Nearly 50,500 Credit Suisse employees are set to be added to the existing 74,000 at UBS.
“This is the single biggest financial transaction since 2008,” Kelleher said, adding that it’s also the first time two global systemically important banks have merged. “On that basis we felt that Sergio was better suited to navigating these things, mainly because he has already downsized an investment bank of scale.”
Kelleher wants to shrink the combined investment banking operations to represent only around a quarter of the new entity’s risk-weighted assets.
And while there are some bankers from Credit Suisse who could be attractive to UBS, Kelleher said they would be filtered through a screen to ensure no bad apples infect his organization’s risk-averse culture.
“Our shareholders by and large see significant upside in this transaction,” the bank's chairman said. “But they are very concerned about execution risk and we have a lot of execution risk here, so this is not in any way an easy deal to do.”
Beat Wittmann, partner at Porta Advisors, told CNBC that the decision to put a Swiss native nevertheless helps restore trust domestically ahead of federal elections in October. "This decision to put Sergio Ermotti—proven and trustworthy in the view of the public at large and also the industry—in place here as the CEO is certainly going to calm discussions, and that is certainly one of the motivations."
