Stefano Rellandini/ReutersSergio P. Ermotti joined UBS in April from the Italian bank UniCredit.
When Sergio P. Ermotti entered the chandelier-drenched ballroom at the Waldorf Astoria hotel in Manhattan for his first investor day at UBS as chief executive, he started choking on a piece of food, prompting a few attendees to joke that he may have bitten off more than he can chew in taking the top spot at the beleaguered Swiss bank.
As he took to the stage, a more composed Mr. Ermotti outlined the much-anticipated turnaround strategy for the firm, which in recent months has weathered the European debt crisis, global market turmoil and a trading scandal that prompted the resignation of his predecessor and dented employee morale.
In his speech on Thursday, Mr. Ermotti, 51, promised to shrink weak business units and to continue bolstering the bank’s capital levels. He is also aiming to increase the firm’s return on equity — a main measure of profitability — by several percentage points.
“We know these goals are ambitious, but we think they are achievable,” he told the crowded room made up of largely analysts and reporters. “Everyone will judge the success of our strategy by our ability to execute.”
UBS has endured a turbulent few years.
After becoming Europe’s biggest banking casualty during the subprime drama, UBS had to be bailed out by the Swiss National Bank in 2008. The financial firm had slowly started to restore credibility and profits when the sovereign debt crisis hit, hurting business and prompting layoffs.
Then in September, a rogue trading scandal cost the firm more than $2 billion and raised serious questions about its internal risk controls. In the wake of the scandal, Oswald J. Grübel, the chief executive who was expected to revive UBS with a plan for a slimmer but more profitable bank, resigned. Kweku M. Adoboli, the former trader who has been charged with fraud and false accounting for the trades, has yet to enter a plea and faces a court hearing in London next week.
Now it is up to Mr. Ermotti, who joined UBS in April and was named chief executive on Tuesday, to convince clients and employees that the difficult times are behind.
While Mr. Ermotti declined to comment on the trading scandal at the event, he and other senior executives promised a return to the basics. They outlined plans to exit risky businesses like equity proprietary trading, where the firm makes bets with its own capital. It is also in the process of scaling back the investment bank.
Instead, the bank will focus on areas like leveraged finance and corporate lending that offer the potential for good returns with less risk. Mr. Ermotti singled out the firm’s wealth management division, telling investors it was not for sale.
The bank will also continue to cut the work force. In August it announced plans to cut 3,500 jobs and said Thursday it would eliminate 400 more positions in the months to come.
But some analysts said Mr. Ermotti, who cut his teeth on Wall Street working at Merrill Lynch, faced a daunting challenge in revamping UBS at a time when the industry was streamlining and coping with stricter capital rules. Credit Suisse, a rival whose investment banking unit has been performing better, has laid out a similar strategy to UBS, raising doubts about how the banks will be able to share the shrinking demand for services and products.
Some analysts have urged more radical options for UBS. Kian Abouhossein at JPMorgan Chase wrote this month that UBS and Credit Suisse could combine their investment banking operations, a step that could create a top-five player by revenue.
On Wednesday, a former UBS chairman, Peter Kurer, who left the bank in 2009, suggested that UBS and Credit Suisse should split their investment banking businesses from the rest of the banks to satisfy shareholders.
“There are few who believe in a great future for investment banks; hardly anyone thinks that Swiss universal banks are good at running integrated investment banks,” Mr. Kurer wrote in a commentary for Bloomberg News on Wednesday.
Article source: http://dealbook.nytimes.com/2011/11/17/ermotti-outlines-turnaround-strategy-to-ubs-investors/?partner=rss&emc=rss
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