UBS surprised investors with a favorable second-quarter result. Is CEO Sergio Ermotti prepared to bear the consequences of the numbers?

The Swiss bank led by CEO Sergio Ermotti is ahead of crosstown rival Credit Suisse in many ways: most quarters, UBS earns a return over its estimated 10 percent cost of capital – as it did in the quarter ended June 30.

Unlike Credit Suisse boss Tidjane Thiam, UBS is extremely reluctant to make invasive cost cuts. At Credit Suisse, deep cuts since Thiam arrived in 2015 seem to have revived the Swiss bank's fortunes.

Hard Spending Cap

Less than six months into the job, Thiam set a hard spending limit – and maintained it. He cut thousands of jobs, including in Switzerland, but pleased investors.

UBS' second quarter indicates that the bank would also benefit from a ruthless Thiam-style spending cap: net profit edged higher on lower spending, despite the inability of its flagship wealth division to cut costs as quickly as revenue slid (click here to read more).

«Tactical Measures»

Part of UBS' newfound savings may be «tactical measures» UBS flagged when the first quarter soured. This year, the 59-year-old Ermotti wants to squeeze an additional $300 million of cuts out of UBS.

Specifically, UBS would stagger hiring and slow or mothball some IT projects, he said. Ermotti's aim was put just enough money towards growth initiatives so as not to strip UBS of its ability to face the future.

Cuts vs Adding Payroll

UBS cut 5,528 contactor jobs in the last 12 months. In parallel, it lifted its headcount by 3,239 people. In the second quarter alone, UBS got rid of 727 contactors, and took 559 employees onto its payroll.

The bank's stock rose on Tuesday following the report, but will the measures be enough to appease shareholders further out? Since no one – neither UBS nor its detractors – seem to have an alternative to the bank's current strategy, costs will remain the obvious leverage.

Captain Ditching Crew? 

«Captain» Ermotti has charted a course and hoisted UBS' sails to fit. He has less influence over the winds determining the speed at which the bank advances. Ermotti and UBS can't be blamed for the lack of initial public offerings in Switzerland in the first quarter. Ermotti and Chairman Axel Weber also, of course, have no influence over financial markets or the risk appetite of their clients.

But the bank can step up the pace at which it is throwing ballast overboard, as the second quarter shows. If Ermotti wants to be as ruthless as Thiam at Credit Suisse, he is going to have to ditch some of his crew.