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UBS Chairman Colm Kelleher (L) and newly appointed CEO Sergio Ermotti

Ermotti’s Second Stint at UBS Comes With a Sense of Déjà Vu

UBS tapped the 62 year-old veteran to oversee the emergency takeover of Credit Suisse Group AG.

(Bloomberg) -- Sergio Ermotti cut thousands of jobs, dismantled large parts of the investment bank and instilled a culture of risk awareness during a decade at the helm of UBS Group AG.

Now he’s set to do it all over again.

UBS on Wednesday tapped the 62 year-old veteran to oversee the emergency takeover of Credit Suisse Group AG. The government-brokered deal turned UBS from a stable bank aimed at increasing capital returns to one of the most complex integration tasks in global finance. UBS wants to cut more than $8 billion of costs, slash thousands of jobs and offload billions of risky assets it doesn’t want from its former rival.

The UBS board simply “felt we had a better horse with Sergio” to handle that task than with current CEO Ralph Hamers, Chairman Colm Kelleher said at a press conference.

Much of his new challenge will sound familiar to Ermotti, a Swiss national who steered UBS through the aftermath of a crisis triggered by rogue trader Kweku Adoboli. After taking over in 2011, Ermotti worked to improve the bank’s risk controls and governance and took an axe to the fixed-income trading business, pivoting the bank further toward wealth management. 

Adoboli had amassed a $2.3 billion loss, only a few years after UBS was bailed out in the financial crisis. The scandal hastened a strategic review that culminated in a decision to eliminate 10,000 jobs. It’s a move Ermotti may now have to replicate on an even larger scale as he integrates Credit Suisse and seeks to win broader support from Swiss taxpayers, who are again on the hook for losses.

Read more: Credit Suisse’s 9,000 Job Cuts Are Foretaste of UBS Takeover

“We have to understand that there is an emotional reaction to what happened and this is part of the complexities that we will need to manage,” Ermotti said Wednesday. “We will make our stakeholders comfortable that what we do is in the best interest of the taxpayers and the government and also all the employees.”

While UBS has said it’s too early to detail potential job cuts, Kelleher has been clear that he plans to cut back risk in Credit Suisse’s investment bank and particularly the trading business. Ermotti had done just that at UBS the first time around, with revenue from the investment bank falling about 30% during his tenure. 

He also merged the bank’s two wealth-management businesses, making that unit the centerpiece of his plan to boost growth. Invested assets at the firm roughly doubled during his tenure. In 2019, he brought in Credit Suisse’s star banker Iqbal Khan to take control of the wealth business. Khan is now a key executive UBS is counting on to merge the private banking operations of the two firms and retain top relationship managers and their clients.

Still, Ermotti’s decade at UBS wasn’t without missteps. It included the departure of executives such as Andrea Orcel, the former investment banker who is now CEO of Italy’s UniCredit SpA, as well as the threat of a huge fine for a tax-evasion case in France.

UBS had been fighting a long battle with French authorities who alleged the bank helped clients hide assets from tax authorities. In 2019, a French court found UBS guilty and imposed a record €4.5 billion penalty that was more than halved in a 2021 appeal.

Read more: Ermotti’s Farewell at UBS Leaves Plenty to Do for New CEO Hamers

Ermotti’s final years leading UBS likely were the toughest of his tenure. With his revamp completed and legal fines as well as negative interest rates weighing on the firm, investors were getting increasingly nervous how the firm was trying to preserve its edge. 

Shares of the lender had more than doubled in Ermotti’s first four years, only to give up most gains when rivals including Credit Suisse started to catch up. They still did a lot better than the broader European banking industry, which lost about a third of its stock market value by one measure.

When he departed in late 2020, Ermotti left on a high note, with UBS reporting one of its strongest quarters of his tenure. A booming investment bank, unexpected inflows from rich clients, and some of the lowest provisions for bad loans in Europe even allowed the lender to set aside $1.5 billion for share buybacks.

“I stabilized the bank” and “reinforced the culture,” Ermotti said about his first chapter at UBS in an interview with Bloomberg TV in October 2020. “I hope I will be remembered for those things.”

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