Best global bank:
|UBS: Model of a modern bank|
|Orcel’s new spin on old-style investment banking|
|Award acceptance speech video|
|View more 2014 awards|
Then and now. It's the only way that you can look at UBS. And the turnaround is one of the most dramatic in the history of financial services.
The story of UBS's fall from grace is well documented. Suffice to say that it was one of the first, and biggest, victims of the sub-prime crisis, losing tens of billions of dollars in an ill-judged attempt to be the world's top investment bank.
That, and a series of scandals that culminated in unauthorized trading losses of close to $2 billion in 2011, had sceptics writing death notices for the firm.
It wasn't just the losses, it was the loss of reputation that hit UBS so hard. At one point it had suffered net outflows of more than SFr200 billion from its core wealth management franchise.
Enter a new CEO and a management team determined to turn the fortunes of the once-safe Swiss bank around.
Just two days after his confirmation as full-time chief executive of the firm, Sergio Ermotti announced one of the most radical repositionings of a global financial services business in November 2011.
The strategy was clear: focus UBS around the areas in which it could and should be a leader. That meant it was a global wealth manager first and foremost, underpinned by a Swiss universal bank and a powerful asset management business, with a greatly reduced investment banking operation that was there to complement its bigger franchises, but with much reduced capital and risk-weighted assets allocated to the division.
While the announcement was broadly welcomed, many doubted that Ermotti could deliver on the strategy. But Ermotti delights in proving the pundits wrong. In less than a year came a new announcement: Project Accelerate. This took the restructuring of the investment bank further than anyone had anticipated, closing or cutting down business lines that could not deliver an economic profit to the group, notably in the troubled FICC sector.
Share price jumping
Now Ermotti had to prove that he could not only produce a strategy, but also deliver on it. And 2013 proved a better year than even bank insiders could have wished. Even some senior executives within UBS thought that Ermotti was going too far. But the markets loved the announcement, with the share price jumping 30% in the next three months.
In 2013, all of UBS's businesses were profitable in every quarter. Group adjusted profit before tax grew 44% to SFr4.1 billion for the full year. Wealth management attracted net new assets of SFr54 billion, 14% more than in 2012, and more in net new assets than the second, third and fourth largest global wealth managers combined. All this was achieved while reducing RWAs from SFr258 billion to SFr227 billion. Since the announcement of the new strategy, balance sheet assets have been reduced by around SFr400 billion
That strong performance continued into the first quarter of 2014, with profits up 97% on the same period last year. Its 13.2% Basle III common equity tier 1 ratio is an industry leader.
|Sergio Ermotti: |
under his leadership, UBS has become the model of a modern bank
Its most important industry leader, though, is the global wealth management business. In 2013 it delivered profits of SFr3.3 billion, up 25%. Investable assets globally were close to SFr1.8 billion - giving the group huge scale and influence across financial markets. The Americas part of the business reached a key milestone: it has $1 trillion in invested assets, $1 billion of adjusted pre-tax profit, and $1 million in revenues per financial adviser.
And the investment bank, written off as an impending irrelevance by rivals only 18 months ago, has surprised many. It is picking up deals from highly-prized clients, such as KKR and Deutsche Bank, and showing it can generate economic profit. For the first quarter of this year, the division's return on attributable equity was close to 30%.
UBS still faces some tough challenges. It needs to continue to deliver on its cost-cutting programme. Like all global banks, it is likely to face litigation and fines on legacy issues. It holds SFr3.2 billion provisions. That may not cover the payouts, but more worrying for Ermotti will be if previous misdeeds tarnish the reputation he has worked so hard to restore.
Most of all, UBS needs to show that it can deliver its target return on equity of 15% on its high capital base. So far, it's the one thing Ermotti has failed to deliver. Even accounting for net profit before amortization and impairment of goodwill and intangible assets, UBS's ROE in the first quarter was 10.7%. Analysts suspect UBS needs an aggressive return of capital to shareholders to get anywhere near 15%. But Ermotti has proved his doubters wrong before. Don't put it past him to do it again.