UBS’ success in profiting from a favorable market environment does not make CEO Ralph Hamers’ job of carrying out the transformation expected from him any easier.
Switzerland’s largest bank, UBS, Tuesday gave its shareholders good news. It posted a net profit of just over $2 billion, net fresh inflows of $25 billion into its Global Wealth Management division and promised further payouts to shareholders.
It’s no wonder that UBS shares rose over four percent, unheard of in recent times.
Great Fanfare
This is good news for CEO Ralph Hamers, but then again maybe not. The bank’s latest success does not make his job any easier.
Last November Hamers arrived at UBS to great fanfare. He was the one who was going to make the somewhat hierarchical and slow-moving banking giant agile and take it into the digital age.
However, the bank has come up trumps in its traditional strengths and in areas where Hamers, the digitizer, has little experience: private banking, collateral-backe loans and mergers and acquisitions in classical investment banking.
Real Management Heroes
«Momentum is on our side and our strategic choices and initiatives are paying off,» Hamers said in the results statement Tuesday. However, the bank is only reaping what his predecessor Sergio Ermotti sowed because of the rise in stock markets.
The architects of the latest profits are the co-heads of Global Wealth Management Tom Naratil and Iqbal Khan, the head of the trading unit, Global Markets, Robert Karofsky as well as Ros L'Esperance and Javier Oficialdegui in the corporate banking unit, Global Banking.
«If It Ain’t Broke Don’t Fix It»
«Never change a winning horse,» the saying goes, and the radical reformer Hamers might end up hearing that a lot because the latest results strengthen those who oppose change at the bank. They can trot out the argument that «if it ain’t broke don’t fix it».
No Big Stick
Hamers has so far taken a relatively soft approach at UBS, which has met with widespread criticism from outside the bank, including from finews.com. Usually, it is easier for a CEO to make changes when they first join a company, and Hamers has been accused of missing an opportunity. It may well be that wielding the big stick is simply not part of the jovial Dutchman’s approach.
However, to outsiders, he does not seem to have made any major moves apart from appointing a chief digital and information officer and setting a cost-cutting goal of $1 billion by 2023. According to media reports, UBS also plans to cut 700 jobs in Switzerland.
In his inaugural interview with the Swiss tabloid, «Blick» Hamers said of his second impression of UBS: «I see things differently now. The bank has a very professional setup and is very thorough in what it does. At the same time, we could be quicker and more agile.» That could mean a lot or nothing.
Woolly Words
Sources at the bank say people are becoming tired of the boss’s woolly statements. «It would be nice to talk about the business rather than about the purpose of banking all the time,» is one criticism leveled at Hamers.
In April, Hamers declared in a strategic statement that the bank’s primary purpose was connecting people to create a better world. That might be a little too esoteric for some bankers dealing directly with clients.
Another issue will be shareholder sentiment after the bank’s long yearned for success. Most of the 23 analysts following UBS have it as a buy recommendation. What UBS shareholders want is a solid return on capital and more payouts. Despite a surprisingly good 2020 result the bank decided in January to pay out a significantly lower dividend than in 2019.
Big Enough Cushion
Any transformation costs a fortune which has to be at the expense of payouts to shareholders. There is a strong possibility that the market would punish any major moves on Hamer’s part and take out the money ploughed into the bank over the previous successful quarters.
However, UBS was able to bolster its capital cushion in the last quarter., which means that in contrast to rival Credit Suisse it can afford a transformation. The stars seem to be aligned on this as never before.
Clock Ticking for Banking
No one would argue that the clock is not ticking for the big banks on digitization. Various recent studies have shown the tendency of the private banking clientele to swap to fintechs or even tech companies.
Three years ago consultants at McKinsey said that the major banks’ low share prices reflected investors’ lack of confidence in the future of banking.
There is a fear of disruption but those banks which do not move on digitization are under threat. UBS also illustrates who strongly the bureaucracy resists change. «We are eager to make the most of the future», Hamers said Tuesday. The question is whether he will be allowed to.
