UBS has established itself as one of the top global wealth managers – but investors expect more from Switzerland’s biggest bank. The ball is now in CEO Sergio Ermotti’s court.
UBS head Sergio Ermotti is not alone when he complains about the sluggish performance of the bank’s share price. A large number of investors are of the same opinion – and some are now voicing their dissatisfaction.
Thus Amit Goel, bank analyst at Barclays, told the news agency «Bloomberg», that the UBS story «had become boring and somewhat tame» and was causing him increasing concern. Investors are looking for investments that will «outperform» and won’t only push higher when the overall market moves up.
Target Hit, Shares Sluggish
The problem is homemade. Since it was the explicit aim of UBS to focus for some years on wealth management, in order to reduce risk for and return more predictable results.
Ermotti has now achieved this. UBS is now a global leader in wealth management, grows above market rates, delivers appropriate earnings results, and the shares trade at a premium over its competitors.
Charge: No Targets
At the start of the year Ermotti intervened to bring some momentum into the UBS story. He announced the creation of a super division in wealth management and a 2 billion Swiss franc ($2 billion) buy-back program.
This didn’t help much: UBS shares have dropped a good 14 percent this year, along with the market – losing more than either Credit Suisse or Barclays. Ermotti and his co-heads in wealth management, Martin Blessing and Tom Naratil, must accept the accusations that they haven’t provided detail on the efficiency and cost targets of the merger.
Thiam Does it Better
They could have taken a leaf out of Credit Suisse CEO Tidjane Thiam’s book. He has placed the greatest importance on cost-cutting targets. A large unnamed UBS shareholder told «Bloomberg» that «UBS, compared with Credit Suisse, could be more communicative regarding costs».
Expectations now rest with Ermotti and the release of UBS’s second-quarter earnings on July 24. There is an information vacuum over the progress made in the new super «global wealth management» unit. Expectations have already been formed.
«Would be Embarrassing»
Martin Moeller, portfolio manager at Union Bancaire Privee, said: «If the cost basis in wealth management only slips by two percent, then that would be embarrassing. Five percent would be neutral and 10 percent convincing.
Ermotti must set aggressive cost targets – but it’s doubtful whether he will. UBS said in a recent statement that setting cost targets made no sense as it isn’t in a restructuring phase. UBS is one of the few banks who deserve their capital costs – and that’s no coincidence.
The crux of the matter is that UBS is so concerned about stability that any fantasy on future developments has vanished. Low single-digit growth in wealth management, ongoing improvements in efficiencies – these won’t trigger any enthusiasm in the global investor community.
Investors Wait for Losses
The paradox is that based on price-book value criteria, UBS is actually better than Credit Suisse or Barclays – which are not reflected in the share price. UBS shares are now at around 15 francs.
Investors have noted this discrepancy and are waiting for their chance. Urs Beck, fund manager at EFG International, said the UBS share has fallen so much that it is now becoming attractive again. If it drops to 14 francs, Beck might decide to buy.
