Best global bank 2014: UBS – Model of a modern bank

Less than three years ago UBS was written off as one of the ultimate victims of the financial crisis. The bold decisions taken then by a new chief executive and his management team make it today a bank that others seek to emulate. Sergio Ermotti pinned UBS’s future to the core of its leading global wealth management business. Now the business is starting to look more than the sum of its parts.


Sergio Ermotti leans back in his chair and flashes an enigmatic smile. "Do you know where our CDS is trading today? It’s 38 basis points," he says.

UBS’s chief executive leaves it to Euromoney to fill the hole in the conversation. It’s the middle of June, and we can see his point. JPMorgan’s senior five-year credit default swaps are trading at around 52bp, Bank of America’s at 62bp and Goldman Sachs’s at 69bp.

Go back to 24 months and UBS’s CDS spreads were among the highest in its peer group, at around 200bp.

But it’s not the only measure by which UBS is leading its peers in global financial services. The Swiss bank trades on a price to book value of 1.7 times. It fully expects to hit a group return on equity target of 15% in 2015, when many competitors remain drifting in the single digits. With a Basle III CET1 ratio above 13% the bank has a capital cushion that few banks can match. That capital cushion – once seen, in terms of the so-called 'Swiss finish’, as another potential nail in its coffin – is now regarded as a competitive advantage.

Perhaps the biggest indication of Ermotti’s success is less tangible. But it’s there in every-day discussions between bankers, or in the research notes of analysts, some of whom choose the bank as their top pick in financial services. People now talk about whether other banks will 'do a UBS’.

What UBS has done, since Ermotti became chief executive in 2011, is redefine its business. The principle is clear: UBS is now focused on things it is good at, and can be a leader in. At the heart of that strategy is its global wealth management franchise, a $2 trillion-plus asset business that is the envy of its competitors.

Ermotti repeats to Euromoney the mantra that he has been telling colleagues, clients and shareholders since the announcement of the bank’s strategic review in October 2012: "Wealth management is not what we do; it is what we are."

The message is designed to be simple, but it does not tell the whole story. UBS continues to leverage its dominant position in Switzerland. Its asset management business is profitable while other banks consider whether they should keep theirs. And its investment bank, which not long ago most competitors were ready to place in the dustbin of history, is still there, and still competing, in the areas in which it operates.

"You have to admire not just the decisions that UBS has made, but the way they have executed them as well," says the chief executive of one leading US financial institution. "They’re the top global wealth manager. They now have a fully integrated investment bank that suits the private bank. The markets are right to rate them highly."

From 2002 to 2007 the banking book at all firms barely grew, but trading books grew by a factor of seven. Regulation has one clear target – to reverse that growth in the trading book. A lot of people on boards of banks think we are in a transitory decline in trading revenues. We are not. It is clear that the future for investment banks will be focused around clients, not products
Axel Weber

Axel Weber, UBS

Not long ago, 'doing a UBS' would have meant something different, and its sense would have been pejorative. Since the very start of the financial crisis, UBS seemed to trip up over every possible hurdle.

It was the first big victim of the sub-prime crisis, shutting down its in-house hedge fund Dillon Read Capital Management in the spring of 2007 and about a year later announcing losses related to sub-prime of close to $40 billion.

It was the first big Swiss private bank to fall foul of the US authorities for helping its American clients avoid taxes. A whistleblower prompted a Department of Justice investigation that eventually led to UBS withdrawing its offshore tax business in the US and paying a fine of $870 million in 2009.

Such incidents hit hard at UBS’s bottom line, at its capital base, and most of all at its reputation. The chief executive’s office became a revolving door, with three CEOs in office in the space of 18 months between 2007 and 2009, when former Credit Suisse chief Ossi Grübel was brought in to steady the ship.

The Adoboli case was a crucial moment in changing how we looked at things. It was becoming more clear how regulation would affect investment banking. We were still running the business on the basis of maximising revenues. Sergio imposed a new way that meant we ran it on the basis of economic profit
Lukas Gähwiler

Lukas Gahwiler, UBS

In 2011, the investment bank became the victim of one of the biggest unauthorized trading losses in history, of close to $2 billion. The actions of former equity trader Kweku Adoboli led many, both internally and externally, to conclude UBS’s investment bank was not fit for purpose. It also led to the resignation of Grübel, with Ermotti taking over as an interim CEO in September 2011.