UBS boss Sergio Ermotti bought 1 million shares in the Swiss bank. finews.asia explains what is behind the penultimate UBS insider's $13 million gamble.
1. Standout Deal
The deal is striking: Sergio Ermotti, the long-standing CEO of UBS, bought 1 million shares in the Swiss bank for 13.1 million Swiss francs ($13.1 million) after an investor event last week. This is the only purchase transaction by a member of top management in two years according to stock exchange data, and by far the largest in recent corporate history.
Intriguingly, UBS volunteered the transaction as Ermotti's (it isn't legally obliged to disclose the names of top managers who buy and sell stock). The move means the CEO explicitly wanted to be publicly linked to the mega-deal.
2. Matter of Trust
For the head of the world's largest wealth manager to buy such a sizable stake so shortly after an investor event sends a strong signal – likely intended. After the bank shed more than one-quarter of its market capitalization this year, the CEO's big bet is an attempt to telegraph trust to investors.
UBS' shares have fallen since last week's investor day, where Ermotti stayed true to UBS' current strategy. On Tuesday, after Ermotti's all-in bet became public, the stock drifted higher at opening.
3. Penultimate Insider
Ermotti griped that investors (and financial media) either didn't properly understand UBS' stock story, or that the bank hadn't adequately explained it. As the penultimate UBS insider, he knows the bank's potential better than anyone – and is willing to pony up a double-digit million sum from his own pocket.
Whether Ermotti bankrolled the trade himself is unclear (he earned 14.2 million francs last year). What is clear is that he bought under book value, is set to cash in on at least 0.65 francs per share in dividend (that is 650,000 francs alone, if UBS keeps its dividend unchanged), and benefit from the share price-massaging effect of a 2 billion franc share buyback.
4. Career Hedge
With the 13 million franc bet, Ermotti has shown he understands what it means to manage other peoples' money – it is hard to imagine a CEO with more skin in the game. This will undoubtedly benefit his standing as CEO. Banking insiders and finews.asia assume that the Ticino native wants to move upstairs to the Swiss bank's board at some point. UBS' recent share drop doesn't exactly help his case.
5. Waiting for Big Bet
The 13.12 million franc investment represents a lot of money – but not enough to move UBS' $50 billion market cap. Instead, Ermotti & Co are reliant on the signal that the purchase sends. UBS would need a more daring move to fuel its shares sustainably higher, as finews.asia outlined recently.
IBM boss Ginni Rometty provided a blueprint of how an industry incumbent seeks revitalization by buying an emerging technology like Red Hat. Rometty's whopping $34 billion acquisition is a true all-in bet.
