UBS' strategy update shows one thing very succinctly: CEO Sergio Ermotti doesn’t intend to get caught out before he calls time on his career at the bank.
«Blick», the Swiss tabloid newspaper put it in bold letters before today’s third-quarter report: «UBS – What a Yawn of a Bank».
The editors at finews.com had come to a similar conclusion, namely that there’s a lack of dynamic and growth impulses at the super tanker of Swiss banking. The frustration doesn’t stop at the media of course – CEO Sergio Ermotti has frequently showed himself displeased with how investors seemingly failed to estimate his efforts and hence the frustration about the snails pace of the UBS stock.
Long-Term, Organic, Disciplined
For those who had harbored hopes for some unexpected fireworks in the investor update today, for a decisive and daring step forward that would have the potential to lift the stock out of its gloomy paralysis, there was precious little.
Ermotti and his crew aren’t to be budged into altering their overall, long-term strategy. Organic growth in global wealth management, a disciplined approach to spending, efficient use of equity and share buybacks: these are and remain the cornerstones of the bank’s strategy through to the end of the CEO’s probable tenure in 2021.
Predictable
Before today's presentation of the strategy suggested, finews.com suggested that Ermotti wouldn’t present anything really new and sparkling. And that’s exactly what happened. Growth and cost targets have barely been touched, and certainly haven’t become any bolder.
Ermotti raised the cost-cutting target for the global wealth management division to 250 million Swiss francs ($250 million) from a previous 100 million. The growth target for assets under management remain a conservative 2 to 4 percent and the annual increase in pretax profit of as much as 15 percent is to be achieved mainly through the lowering of the cost-income-ratio.
Uninspired or Well Advised?
Maybe one could call all this a tad uninspired and lacking a degree of boldness. The head of the Swiss No. 1 obviously prefers to keep toiling away, fulfilling his tasks defined back in 2012 than to try and boost the share price through an aggressive cost-savings plan or ambitious set of growth targets.
Then again, one might as well conclude that Ermotti was well advised to reward existing shareholders for sticking with the bank than to try attract new investors through a set of promises that he might not be able to keep.
Sustainable in Every Sense
What UBS is doing is to lure shareholders with an outlook of a higher dividend each year and share buybacks. Sustainability is a keyword the bank’s chiefs are using rather frequently.
The concept doesn’t simply apply to efforts in respect to corporate sustainability and to investment strategies. UBS aims to create long-term positive values for its clients, members of staff and shareholders as well as for society as a whole.
The caution noticeable in the wording of the growth and cost targets is easily explained that way. UBS presents a story of predictability that leaves no room for surprises.
Markets Shrouded in Uncertainty
And the reluctance to use the strong words may also be due to uncertainty in the markets. The trend towards higher interest rates and the trade war started by U.S. President Donald Trump had a negative impact on markets. It is hard to say in which direction markets will trend in coming months.
Ermotti may want to avoid being caught out by an unsettled market that would render unachievable more ambitious targets. His predecessor, Oswald Gruebel, famously predicted in 2009 that the bank would reach a pretax of 15 billion francs before long.
A target revealed as sheer phantasy in an environment where the debt and euro crisis caused havoc. UBS clearly wants to prevent a repeat performance and Ermotti has to pay the price: the share price of UBS will hardly start outperforming during his tenure. In the eyes of the interested public, the bank will remain to be seen as a supertanker that doesn’t stray an inch off course – a performance evidently much in line with its ambitions.
