Sideways: Ermotti does a Diamond-lite

By:
Jon Macaskill
Published on:

UBS CEO Sergio Ermotti may just have ‘Done a Diamond’ with his widely reported message to bankers at the firm that they should take more risk and not be afraid to make mistakes.

Sergio Ermotti TV screens-R-600

sideways
He stressed that he meant honest mistakes, not breaking rules, but this nuance may be lost on outsiders who were struck by the coincidence that UBS came under yet another regulatory cloud – in the form of an investigation into potential precious metals price fixing – soon after Ermotti delivered his cheery exhortation to his subordinates.

The episode is strongly reminiscent of the decision by Bob Diamond, former CEO of Barclays, to declare in 2011 that the time for remorse and apology by banks should be over, a year before his bank was engulfed in the Libor rigging scandal that would cost him his job.

Ermotti is unlikely to suffer this fate, but his don’t-worry-be-happy speech was ill-judged, as well as poorly-timed. Veteran investment bankers may pine for the glory days of pre-2008 crisis sales and trading, when there was enormous potential upside and limited downside to testing the boundaries of acceptable business behaviour. And there are legitimate complaints to be made about the costs of compliance under the new regulatory regime for banks.

But a public, or semi-public, endorsement of risk taking and mistake making is a very odd approach for a banking CEO to adopt, particularly one at the helm of UBS, which has a track record of astonishing blunders, ranging from its epic mortgage crisis mishaps, where writedowns were not too far from $40 billion, to the more recent Kweku Adoboli $2.3 billion rogue trading loss.

Ermotti may have fallen victim to the current fashion for Wall Street executives to look to Silicon Valley for lessons on how to succeed in business by first failing. This fad is encapsulated by the mantra 'fail fast, fail often’. 

Constraints and controls

Jealous glances towards California’s technology fortunes may be understandable from bankers who are chafing under bonus constraints and cost controls. But failing often, whether quickly or slowly, is probably not a message that should be stressed by an investment banking industry that is trying to reposition itself as client-centric. And a firm like UBS that was able to hold on to a leading position as a custodian of other people’s assets, despite its inability to safeguard its own money, should certainly not be flirting in public with the idea that mistakes are OK, or that down is the new up.

Further reading
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Macaskill on markets:
Vorsprung durch Vorschrift

Far better, surely, for Ermotti and his troops to fail as quietly and as infrequently as possible. UBS has been displaying worrying signs of hubris recently, as it tries to take public credit for its move to scale back fixed income sales and trading before rivals such as Credit Suisse and Deutsche Bank. Its investment bank is run by Andrea Orcel, a corporate financier by background who was instrumental while at Merrill Lynch in putting together one of the most value-destructive deals in history with the ABN Amro takeover, without suffering any significant career downside.

Hopefully Orcel’s subordinates will not take his example that glaring failure can be brushed off, or Ermotti’s musings on the joys of making mistakes, as an excuse to cut any corners.  

Regulators in Switzerland seem to have discovered a new appetite for investigation of potential wrong-doing since they were embarrassed by the lead role taken by US authorities in pursuing apparent irregularities at FIFA, the world football organisation which is headquartered in Zurich.

Just three days after the Swiss attorney general announced a criminal investigation of Sepp Blatter, the veteran FIFA president, it emerged that competition authorities in Switzerland were examining potential precious metal price collusion by UBS and six other firms.

Precious metals trading is an area that Ermotti and Orcel decided to retain as part of their slimmed-down model of the modern investment bank. They must be hoping that their subordinates have not committed any mistakes serious enough to bring renewed reputational risk problems to UBS.