Banking on managing wealth pays off for UBS

PHOTO: Banking on managing wealth pays off for UBS

IF ONE was going to be offered the top job at Switzerland's largest bank with the Herculean task of cleaning up massive losses, a room on the 50th floor of One Raffles Quay offering a majestic view would be the perfect backdrop for such an occasion.

For it was right here, in September 2011, after a board meeting, that the then-chairman of UBS Kaspar Villiger broke the news to Mr Sergio Ermotti of his appointment as interim group chief executive of UBS.

Two months later, Mr Ermotti's appointment would become permanent, sealing a huge career leap for the 53-year-old from Switzerland's Italian-speaking Ticino region, who joined the world's second-largest private bank only in April that year.

"I was seated right there when I was offered the job," he gestured in the same suite, which offers a breathtaking view of Marina Bay and the busy South China Sea, during his interview with The Straits Times. "So far, I'm having fun," said Mr Ermotti.

Restoring faith in a 150-year institution reeling from one of the largest losses in European banking history during the sub-prime mortgage malaise could not have been a walk in the park. UBS counts the Government of Singapore Investment Corporation as its single largest shareholder.

Following a radical overhaul of the group's businesses, where nearly 2,000 staff were laid off - part of a plan to cut up to 10,000 staff - mostly from the high-risk investment banking business, the results have been encouraging for the Swiss lender.

The Zurich-based bank's first- quarter results for the period ended March surpassed estimates - net profit rose to 988 million Swiss francs (S$1.3 billion) from a loss of 1.9 billion francs in the previous quarter.

"There are clear indications that there is a different momentum in the organisation, thanks to our well-defined strategy," Mr Ermotti remarked.

The move to build on the burgeoning wealth management segment to drive growth has paid off.

A total of 15 billion francs of net new money flowed in in the first quarter, the highest quarterly figure since 2007. Evidently, trust is gradually being restored in the scandal-rattled banking giant.

At its nadir, UBS' investment banking business had racked up massive losses, forcing the bank to accept a government bailout in 2008. In 2011, it suffered a US$2.3 billion (S$2.9 billion) rogue trading scandal and a year later, paid a US$1.5 billion fine for trying to rig global interest rates.

"The (recent) numbers tell us that clients are responding well. As time goes by, more clients will understand that while we had our problems, they are not all idiosyncratic of UBS but of the industry," Mr Ermotti said.

Amid lingering economic concerns in Europe and the United States, Asia is once again expected to lead the charge for banks chasing the share of wallets. But the region alone, will not be enough to buttress growth.

"Asia is still only 13-14 per cent of our asset base. So, we need to be big in US and Europe too. Our goal is for our asset base to be more balanced in the next three to four years (in line) with the growing wealth in this region."

The group's investment banking business, which accounted for most of its losses previously, has also turned the corner. Pre-tax profit from this division nearly doubled from a year ago.

Its capital position has also strengthened considerably and is compliant years ahead of the deadline under the Basel III framework.

But UBS, under Mr Ermotti's stewardship, may have more bullets to dodge. Swiss banks have come under intense scrutiny from US and European regulators for helping wealthy individuals evade taxes. News reports out of Switzerland estimate the overall payouts by Swiss banks to the US authorities to settle claims of abetting tax evasion could go up to 10 billion francs.

Switzerland is also cranking up the pressure on banks to disclose client information.

Singapore, a major international financial centre and a leading wealth management hub in the region, has also moved to crack down on foreign tax cheats.

On its part, UBS has settled some of the charges slapped on it by regulators - it forked out a US$780 million fine in 2009 to the US authorities and turned in names of thousands of American account holders.

These developments could shake up the private banking landscape in Switzerland and other wealth centres in the world which have long thrived on the traditional model of banking secrecy, and pose added challenges for banks to woo clients.

But Mr Ermotti remains sanguine. "Clients are getting used to that. A vast majority of banks in Switzerland have already been operating under these (new standards)," he said. "The assets involved are old legacy assets. They are not new money. I believe the growth of undeclared assets in the industry over the last few years has been marginal."

As banking secrecy is being chipped away, Mr Ermotti has the delicate tasks of fulfilling the ever-changing regulatory obligations, ridding the bank of legacy issues and steering the flagship private banking business.

"I knew spending time on legacy issues was part of the package. It's becoming less now, but remains a big part of the job."



There are clear indications that there is a different momentum in the organisation, thanks to our well-defined strategy.

- Mr Ermotti

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