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More Urgent Issues

Ermotti preferred to harp on about investment in technology, the digitalization of the investment bank, efficient capital allocation and to stress UBS is able to «create value in every market situation».

The market failed to punish Ermotti for this blurred outlook. Still, the shares have fallen so far in the past six months that UBS’s latest earnings are making them look attractive.
UBS however is overlooking a more urgent issue. The value of the shares are now so attractive that UBS could become the target for a takeover, as finews.com reported on Monday.

Ermotti’s Dilemma

In reality Ermotti’s communications dilemma mirrors the global structural problems in the industry. The banking sector is shrinking, and is caught in a race between rising regulatory costs and shrinking margins.

It is perfectly understandable that the investor community, who have to struggle for every basis point in their investment portfolios, have fixed their focus on the cost side of the equation. This is where banks are still carrying excessive baggage, while profit growth potential, to put it mildly, is limited.

Ermotti‘s, reluctance to set clear cost goals but stress rather the health of the bank and its growth strategy may earn him praise. But Ermotti’s insistence the lack of cost goals is because UBS is not in a restructuring phase misses the point: at present the biggest driving force in banking is ongoing cost-cutting.