Four internal candidates to replace Sergio Ermotti have the opportunity to prove their chops against lower financial targets this year
By Rochelle Toplensky
A lower bar should be easy for UBS—and the four board members vying to replace Chief ExecutiveSergio Ermotti —to clear.
Mr. Ermotti cut UBS’s targets for 2020 to 2022 Tuesday.
He is now promising a return on core Tier 1 capital of between 12% and 15%—the top target was previously 17%—and a cost-to-income ratio of between 75% and 78%.
Expectations for future dividends and buybacks were also pared back.
The stock dropped 5% in early trading, even though fourth-quarter profit announced alongside the new targets came in ahead of expectations.
A bit more breathing space in its financial guidance is not a bad idea for UBS, which like its European rivals faces another brutal year.
Negative interest rates in Switzerland and the euro area will continue to hit banks where wealthy clients stash cash to ride out economic uncertainty.
UBS recently started charging customers with balances over 1 million Swiss francs for holding cash, down from a threshold of 2 million in the third quarter.
The Swiss bank hopes to improve its returns primarily through revenue growth rather than cost cutting. This is ambitious in the circumstances.
In addition to the challenging macroeconomic environment, UBS faces rising competition for wealth-management assets in the high-growth Asian region.
The lender may also have to pay a $4.2 billion fine this year in a French tax-evasion case; a decision on the bank’s appeal is expected in the second half of 2020.
Mr. Ermotti has been in post since 2011 and is expected to retire before the end of 2022.
Beating his targets would be a nice send-off.
This seems achievable at the reduced level—and with ambitious potential successors keen to prove their skills.
Earlier this month, UBS veteran Tom Naratiland recently arrived Iqbal Khan announced big plans for the global wealth-management division that sits at the heart of the bank.
Suni Harford’s asset management division delivered a 48% uplift in profit before tax in the fourth quarter of 2019 compared to the same quarter the previous year.
The long-time Citigroup banker joined UBS’s asset management group in 2017, though she only assumed full control last October.
Finally, there is Sabine Keller-Busse, a former McKinsey consultant who joined UBS in 2010.
Currently chief operating officer and president of the Europe, Middle East and Africa region, Ms. Keller-Busse is focused on cutting costs through technology investments and bringing capabilities in house.
Her results might be more difficult for outsiders to identify.
While an external candidate is always possible, investors should keep an eye on the internal race to beat the bank’s targets.
It won’t just determine the stock performance, but will also provide interesting insight into who might lead the bank next.
Sergio Ermotti is expected to retire as CEO of UBS before the end of 2022. Photo: christian beutler/Shutterstock
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