First Signs of Delusion at UBS


Bank leadership has faced near-permanent scrutiny and pressure since rescuing Credit Suisse. That seems to be creating a dangerous «us vs them» mentality, Samuel Gerber writes in a piece for finews.first.

Sergio Ermotti has faced the exact same questions for months. Will the forced rescue of Credit Suisse prove successful in the end? How many jobs will be lost? Isn’t the new UBS far too large for a small country like Switzerland – and far too dangerous?

That would be enough to get on anyone’s nerves. Indeed, the UBS CEO seemed visibly agitated in a recent interview with Swiss daily newspaper «NZZ» (paywall, German only) when pointing out that CS had enough capital before collapsing. «It does not need even more expensive capital. Thinking that is just pure populism». He also had something to say about the merits of the deal. «Liquidating a major bank even though there was a private solution available, just to confirm that it was «too big to fail», would have just been pure masochism», he claimed.

So far, so good. But he then seems to veer off course when anyone criticizes the size of the now combined UBS-Credit Suisse entity. «The term monster bank was coined by journalists who are looking for lots of clicks. In my opinion, this concept has nothing to do with what we are as a bank, and what we are for Switzerland», he told the NZZ journalists present (and who first coined the term).

«Bank management is becoming isolated»

That exchange probably left a bad taste in many people’s mouths, particularly close observers of Switzerland’s largest bank As research by indicates, management has increasingly tuned all noise out, brushing all external criticism off. The powers that be at the global bank are fully convinced that one and one make more than two when it comes to integrating both groups.

From an external perspective, it seems that management is becoming increasingly isolated and thin-skinned. It is almost like they have created an «us vs them» mentality. Anyone who doubts the blessings of this new megabank has some kind of agenda, including journalists, because they come up with these new terms simply to get views. It is disquieting. If it wasn’t a collective attitude, but that of one individual, we would suspect them of being slightly delusional.

But this is also a good point to take stock of the current situation. The fact is that UBS did all the work in stabilizing and integrating Credit Suisse and then successfully reaching all the set transaction milestones at high speed.

Credit Suisse would not have survived one day past the 19th of March when the deal was first announced. If UBS had been able to successfully reject Credit Suisse, the government and authorities would have been forced to implement a backup restructuring plan for the country’s second-largest bank. But that would have resulted in much uncertainty.

The markets already seem to be applauding what UBS has already achieved. Since March, its shares have risen by almost a half. Most analysts recommend UBS as a buy.

«The quick wins are over»

Still, the quick wins are over. That has been the case since the decision was made to fully integrate Credit Suisse’s domestic business in August. The only thing left now is the hard, backbreaking, piecemeal work of integration. There is a great deal in store for 2024, including the start of the program to transfer Credit Suisse clients onto the UBS platform.

When it comes to IT, that is something that has never been done on that scale and a step that poses any number of risks and potential delays. It is also a year when 3,000 job cuts or redundancies are expected in Switzerland, which will only make criticism of UBS all that much louder.

The last and key reason that pressure is set to increase on the bank is self-inflicted. It shrank the integration timeframe by a year to 2026 and raised its cost-savings target. That has prompted a great deal of expectations in the market, something exemplified by activist Swedish investor Cevian Capital becoming a major shareholder with its recent purchase of 1.3 percent of UBS’s share capital.

«It is an uncomfortable trade-off»

Cevian believes that the UBS share price can double to 50 francs ($58.4). That would be an enormous jump given that it is likely that all the profits from the integration have already been discounted into prices. Moreover, Cevian isn’t known for sitting by the wayside and just letting things happen.

It is an uncomfortable trade-off. The complexity of the integration requires detailed work and minimal tolerance of mistakes. The expectations out there call for earth-shaking change and high momentum. UBS seems to be tackling this right now by focusing solely on internal processes while becoming increasingly defensive towards the outside world. The result could be a management culture that becomes increasingly distant and isolated from external circumstances.

That would be dangerous given the large number of stakeholders UBS has to please, and the group’s global nature and inherent importance to Switzerland. Last week’s report by the Swiss Financial Market Supervisory Authority, Finma, maintains, among other things, that management did not have a good perspective of the situation the bank was in. According to them, they never managed to completely and comprehensively root out deficiencies as a result.

Having an eye for the big picture also means looking outside. That is something that UBS management shouldn’t forget. There are three qualities that Ermotti and other UBS leaders should consider for their New Year resolutions. Perspective, moderation, and humility.

Source: Finews