Nine days after the announcement that the Swiss megabank UBS is saving the ailing Swiss counterpart Credit Suisse (CS) from collapse, Ralph Hamers unexpectedly has to make way. The Dutchman is succeeded on the board by his predecessor: the Swiss Sergio Ermotti, who led UBS as the highest executive boss between 2011 and 2020.
Ermutti will start his new job next Wednesday, after the shareholders’ meeting that has already been scheduled. Hamers will remain on as an advisor for a period of time to allow for a “smooth transition” and until the acquisition is formally completed. Hamers is therefore probably employed by UBS until the autumn. “I am stepping aside in the interests of the new merged bank, its stakeholders, including Switzerland and the Swiss financial sector,” Hamers said in the accompanying press release.
Speaking to the press on Wednesday morning, UBS’s chairman of the supervisory board, Irishman Colm Kelleher, said that while Hamers and Ermotti are both good drivers, Ermotti is “the better horse” to take on the challenge UBS now faces. .
Hamers was hired two and a half years ago to fine-tune the strategy of UBS, which was already running smoothly, by digitizing asset management. Just as he had also tried to transform the retail bank ING into a digital bank. In the coming years, however, UBS’s board will be preoccupied with the complex operation to merge the two banks, which will likely see thousands of job cuts.
According to the UBS board, that requires a different person: someone who is tried and tested in cutting and transforming a bank. Although Hamers himself summed up his palmares at ING in that light – the IPO of insurance subsidiary NN, various acquisitions – the Dutchman is not seen as ‘the best pilot’ for this, according to Kelleher.
Kelleher, who was second man at the helm of Morgan Stanley during the credit crisis, referred extensively in the press conference to Ermotti’s merits during his first drive as overall responsible at UBS. The banker born in the Italian part of Switzerland came to the helm of UBS in 2011, just after the credit crisis, in which the bank had to be propped up with Swiss tax money.
The immediate reason for Ermotti’s takeover at that time was that the bank had become embroiled in a scandal involving a fraudulent employee, Kweku Adoboli, who was a banker in the UBS business arm. The Ghanaian could place fake orders to cover up losses without setting off the internal alarm bells. UBS eventually lost the equivalent of 1.8 billion euros to the fraud.
With Ermutti at the helm, UBS cut the investment bank where Adoboli worked. At the same time, that was the branch that suffered the most from bad investments in the credit crisis of 2008. Instead, he made the bank focus on the Swiss retail arm and on the lucrative management of wealthy clients and companies worldwide.
The knife in Credit Suisse
And let this be exactly what must now happen at Credit Suisse according to the UBS bankers: the knife in the investment bank. CS suffered billions of losses there in recent years with bad investments. According to Kelleher, UBS absolutely does not want to import the “bad culture” that prevails among the investment bankers of CS. “We do not want to add risks to our balance sheet with the acquisition. As UBS, we now have a large balance sheet, but a safe one. We want to keep it that way.”
But perhaps the most important fact from Ermutti’s CV that makes him a ‘better horse’ than Hamers: he is Swiss. While the takeover of Credit Suisse by UBS is in theory a takeover of one globally active banking giant by another, in practice it is a Swiss matter.
The takeover of the equivalent of 3 billion francs (3 billion euros) is largely supported by the Swiss government. Hamers and Kelleher managed to secure a government guarantee of 9 billion francs in the five days – and nights – of negotiating with the Swiss government and regulators to cover future damages and pending lawsuits from the Credit Suisse estate. (UBS will assume the first 5 billion francs in damage.) Ermutti stressed in the press briefing on his arrival that it is important that “any consequences for Swiss taxpayers be avoided”.
Avoid cutting up UBS
And the integration of the two banks will also have a strong Swiss influence. Politicians in the country are already calling for detaching the Swiss operations from the large foreign and riskier part of the bank. Ermotti has good contacts in Swiss politics thanks to his first period at the top of UBS, during which state support also had to be settled. After all, the bank will want to prevent it from being forced to cut up.
Hamers sounded relaxed during the press conference, taking the lead several times to explain how the acquisition of Credit Suisse fits perfectly with UBS’s current strategy. Still, it must be painful for Hamers to hear Kelleher say that he already asked Ermotti on Monday, less than 24 hours after Hamers and he shoulder to shoulder explained the takeover to investors, whether he wanted to replace Hamers.
Kelleher emphasized during the press conference that Hamers has been an outstanding driver for UBS, with excellent results during the corona crisis, the war in Ukraine and the recent stress in the banking sector. His efforts to put the ‘customer first’ and put digitization and sustainability on the agenda were also praised by the Irishman. Nevertheless, Hamers was often seen as a lightweight in Swiss media.
Kelleher thanked Hamers for his understanding “and willingness” to step down. Ralph is a good banker. But Sergio is better equipped for this challenge. He is the best person to carry this out.”
During the press conference about his departure, the Dutchman sounded realistic. “I support the decision. I would have enjoyed leading the integration of UBS and Credit Suisse. I also led a restructuring at ING. But my successor also has a good CV. The board has chosen.”