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UBS Investors Have Targets at Top of Wishlist for Ermotti

Updated on
  • Bank said to sound out investors on need for strategic update
  • Swiss lender is first European bank to report Q4 earnings

Four years ago, UBS Group AG fine-tuned its pivot to wealth management just as other parts of banking became less profitable. Now, some investors want the Swiss bank to refresh its objectives as the economy shifts into expansion mode and the firm bolsters capital.

In his seventh year as CEO, Sergio Ermotti has created one of the most stable lenders in Europe, focused on two large wealth management businesses, a pared-down investment bank, asset management and a Swiss retail and corporate business. He’s already signaled that boosting shareholder returns is a key theme on his mind, saying in an October Bloomberg Television interview that investors are waiting for more cash through dividends or buybacks.

“The UBS targets are fairly old, as is the strategy,” said Martin Moeller, co-Head of Swiss & Global Equity Portfolio Management at UBP, which holds more than 100 million francs ($104 million) of UBS shares. “We would be happy to have more information on the strategy. They still have to deliver on the old ROE target, and the cost to income ratio could also be improved.”

Bloomberg’s Patrick Winters says some UBS investors are looking for a strategy update.

(Source: Bloomberg)

UBS to Give Glimpse How Europe’s Banks Weathered Fourth Quarter

The Zurich-based bank has approached investors and analysts recently to gauge whether it should give a more formal strategy update focused on its overall direction, growth prospects and outlook for the various operating units, people with knowledge of the matter said, asking not to be identified because the plans are private. The lender held its last strategy update in 2014 as it increased its focused on managing money for the wealthy.

“Wouldn’t Hurt”

“A strategy update wouldn’t hurt," said Michael Huenseler, a portfolio manager at Assenagon, who holds a stake in UBS that he didn’t disclose. While UBS is not restructuring like Credit Suisse, some businesses such as the investment bank face structural headwinds. “If the flow-business in the investment bank doesn’t generate revenues anymore maybe they need to take on more risks?”

Here are some of the bank’s key targets:

  • An adjusted return on tangible equity of more than 15%
  • An adjusted cost/income ratio of between 60% and 70% 
  • A fully-applied CET1 ratio of at least 13%
  • Total capital return of at least 50% of profit

Rival Credit Suisse has been updating investors each year after it embarked on a three-year restructuring plan in 2015, including most recently at an investor day in November. UBS has regular dialogue with analysts and investors on a variety of topics, spokesman Mark Hengel said, without giving further details.

Under Pressure

Margins in wealth management and asset management remain under pressure, partly due to the rise of negative rates, passive products outflows linked to the end of banking secrecy in Switzerland. Those dynamics -- which have accelerated in recent years -- are making some of the bank’s previously announced targets more difficult to achieve.

Wealth Management Profitability

Steady decline in the gross margin over the last three years

Source: UBS

UBS’s asset management unit had plans in 2014 to generate 1 billion francs in adjusted pretax profit over the medium term. For 2017, the bank is expected to reach 555 million francs, according to analyst estimates. Other possible updates could be the bank’s cost savings target. Ermotti has also said net new money is not the best indicator of the bank’s performance given low-to-negative interest rates and the reluctance of clients to trade.

“UBS is perceived as more business as usual - it would make sense in my opinion to do an investor day and then they would maybe come with a new strategy," Tomasz Grzelak, an analyst at Baader Helvea AG in Zurich, said by phone.

(Adds wealth management chart.)
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