UBS announced Wednesday it will bring back former chief executive Sergio Ermotti to handle the huge risks involved in the Swiss banking giant’s controversial absorption of troubled rival Credit Suisse.
UBS chairman Colm Kelleher said the board thought Ermotti would be a “better pilot” than current CEO Ralph Hamers to steer the new megabank through the integration phase, following the shotgun marriage of Switzerland’s two biggest banks.
Ermotti spent nine years restoring UBS’s reputation after its bailout by the Swiss government and the central bank during the 2008 global financial crisis, as well as the $2.3 billion in losses racked up by a rogue trader in 2011.
“There’s a huge amount of risk in integrating these businesses,” Kelleher admitted during a press conference in Zurich.
UBS and Credit Suisse, the second-biggest bank in Switzerland, were both among the select banks around the world considered to be global systemically important financial institutions (G-SIFIs) and therefore deemed too big to fail.
Kelleher said it was “the biggest single financial transaction” since the 2008 global crisis.
The UBS takeover of Credit Suisse was hastily arranged by the Swiss government on March 19 to prevent a global financial meltdown following fears of contagion from the collapse of banks in the United States.
“I would argue it’s bigger than any deal that was done in 2008, because it’s the first time two G-SIFIs have merged. That brings with it significant execution risk,” Kelleher said.
“I cannot re-emphasise how big this deal is in terms of financial history and financial engineering.”
– Call of duty –
Ermotti, currently the chairman of reinsurance giant Swiss Re, is due to resume his UBS post on April 5, while Hamers will remain at his side during a transition period.
“The debate is not too big to fail: rather, it’s too small to survive — and we want to be a winner out of this,” Ermotti said, after feeling the “call of duty” to return.
The Swiss banker, 62, was CEO at UBS from 2011 to 2020. UBS shares opened 2.5 percent higher following the announcement of his return.
Though most of UBS’s business is international, the Swiss central bank has since admitted that the size of the resulting megabank could cause domestic problems in Switzerland.
UBS was already the biggest bank in the country — and will now become even larger after swallowing up the second-most important lender in the wealthy Alpine nation for three billion Swiss francs ($3.25 billion).
Switzerland, whose vibrant banking scene is a key part of the country’s culture, has been shocked to the core by the enforced merger.
A recent poll showed a majority of Swiss people reject the deal and blame Credit Suisse’s leadership for the outcome.
The Swiss parliament is planning a special session on Credit Suisse in April. It is also exploring whether to create an investigative committee to determine who was responsible for the debacle.
The Swiss financial regulator FINMA is probing how to hold Credit Suisse bosses to account.
Kelleher said the appointment of Ermotti had FINMA’s blessing, but said the regulators played no part in the decision.
– Credit Suisse ‘bad culture’ –
The chairman said there were clearly parts of Credit Suisse that had a “bad culture”, primarily in its investment banking, and he did not want to import that into UBS — though he said its retail banking and wealth management were “probably really quite clean”.
“We have to put everybody through a culture filter,” Kelleher said of Credit Suisse staff that will be retained.
“Investors, our shareholders, by and large, see significant upsides in this transaction,” he explained.
“But they are very concerned about execution risk and we have a lot of execution risk here, so this is not in any way an easy deal to do.”
Ermotti said he was aware of the uncertainty many feel, but would focus on delivering the best for clients, employees, shareholders and for Switzerland itself.
Hamers said he was sorry to leave UBS but “circumstances have changed in ways that none of us expected”.
Credit Suisse was already embroiled in a series of scandals when its shares crashed on March 15 after the chairman of Saudi National Bank, its main shareholder, said his group would not up its stake in the Swiss lender.
A $54-billion lifeline from the central bank was not enough to stop the panic and the Swiss government strongarmed UBS into the deal before the markets reopened on March 20.