UBS’s Ermotti Says Investors Need Returns as Capital Issues FadeBy and
Ermotti says ‘we’re there’ on capital position, legacy costs
Shareholders waiting to see returns via dividends, buybacks
UBS Group AG Chief Executive Officer Sergio Ermotti signaled that the world’s largest wealth manager has resolved its capital and legacy costs and shareholders’ focus is turning to returns.
“Investors are waiting for the time in which the capital buildup to fulfill regulatory requirements is over and the costs associated with legacy matters is addressed,” Ermotti said in a Bloomberg Television interview in New York. “We’re on a good path, we are almost there, actually we are there. Now people need to see the cash flow coming back through dividends or share buyback. ”
UBS has scaled back trading activities since the financial crisis to free up funds to comply with tougher rules on loss-absorbing capacity. With the bank now needing less cash for regulatory requirements and legacy legal issues, Ermotti is holding out the prospect of higher returns, telling shareholders in May that the bank may return to buybacks for the first time in a decade.
UBS is one of several big banks that have yet to settle longstanding claims that they pushed toxic mortgage securities in the years before the financial crisis. In another outstanding case, the bank has been ordered to stand trial in France in a long-running investigation in allegations that the Swiss bank helped wealthy clients avoid taxes.
UBS is seeking to be judged as a wealth manager rather than an investment bank. In an earlier interview, Ermotti said that UBS is basically the world’s most expensive investment bank and its cheapest asset gatherer. He said late Tuesday that he was confident that the bank would be able to be “reclassified” in the “foreseeable future” once it starts boosting returns.
UBS has a policy of returning at least 50 percent of net profit to its investors if its capital ratio doesn’t drop below 13 percent. It could lower those ratios as long as it has enough capital necessary to sustain the business, Ermotti said after the bank took a hit to its capital buffers in the second quarter. Swiss regulators are reviewing the riskiness of bank assets in anticipation of higher global standards.
Like Swiss rival Credit Suisse Group AG, UBS has been stepping up lending in response to strong demand from wealthy clients. Cash balances have begun to decline, as clients are becoming more willing to invest their money, Ermotti said, a positive sign for the bank. There is more willingness to deploy money in equities than bonds, he said.
Still, there’s a high level of “complacency" across all asset classes in terms of the risk premium that investors are receiving, he said.
In an interview published this month, Ermotti didn’t rule out taking over from Chairman Axel Weber one day, though he’s not expecting a change anytime soon. Both executives have said they will stay on for the next five years together.