Sergio Ermotti returns as UBS CEO to run the Credit Suisse takeover

Following the recent acquisition of Credit Suisse by UBS, Sergio Ermotti has been named as UBS's new Group CEO as of Wednesday.

The move will take effect on April 5, according to a statement released by the bank.

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There was an increase of 2% in UBS shares at the opening bell.

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Ermotti, who served as group CEO of UBS for nine years - from November 2011 until October 2020 - will be replacing Ralph Hamers, currently the CEO of the bank. In his current position, Ermotti is the chairman of Swiss Re, one of the world's largest insurance companies.

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During the transition period, "Hamers will remain at UBS so that he can provide the bank with advice to help it close the deal successfully and ensure a smooth hand-over of the company," the company said.

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The Swiss regulators orchestrated a deal on March 19 in which Switzerland's largest bank UBS agreed to purchase its embattled rival Credit Suisse for 3 billion Swiss francs ($3.2 billion). During the midst of a global economic crisis, governments took the step as a measure to prevent a contagion from spreading.

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Following the announcement of the acquisition, UBS said Wednesday that it is making a change in leadership as a result of the new challenges and priorities that have arisen.

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It was explained that Ermotti was able to “successfully reposition” the bank after the 2008 global financial crisis and that he was able to achieve a profound cultural transformation within the bank as a result. UBS said that it was able to “gain the trust of its clients and other stakeholders, as well as restore the pride of its employees" by doing so.

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It was reported by Reuters that Hamers told employees of the government-orchestrated takeover that UBS had not taken over Credit Suisse solely for the purpose of closing it down.

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Colm Kelleher, chairman of UBS, made the announcement and praised Hamers for his accomplishments as CEO, which led UBS to “unprecedented success despite a challenging environment.”

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"UBS' acquisition of Credit Suisse supports the group's existing strategy, but at the same time it creates new priorities within the organization," he said.

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“Considering Sergio's unique experience, I am very confident that he will play a key role in delivering a successful integration which will benefit both banks' clients, employees, and investors, as well as Switzerland,” said Kelleher.

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‘Part of the fallout’

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In the wake of the merger deal, some market observers were surprised by the move, but one analyst said it was just part of the fallout from the merger deal.

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"Whenever there is a forced merger or acquisition of not equal parties, friction is always going to be there, and I believe that is what you are seeing here," Peter Garnry, head of equity strategy at Saxo Bank, said on Wednesday.

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"It was evident that the now-former CEO of UBS was not really pleased with this shotgun wedding, and I believe that is the cause of the current backlash."

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Notably, Ermotti asserted that there was no "compelling" economic justification for Switzerland to have two large banks in an interview with the Swiss weekly NZZ am Sonntag in September.

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"Everything we've seen with regulation, in my opinion, since the global financial crisis has taken us down one path, toward bigger and bigger banks, more and more concentration, which leads to fragility but also less competition, and I'm not sure it's going to be good for the overall financial system in the long run," argued Garnry.

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"It raises the question of whether there will be an increase in government meddling with financial matters.”

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After Silicon Valley Bank failed, he said that the U.S. was debating "to what extent should there be guarantees on deposits above the FDIC deposit guarantee limit?" If you do that, what good are banks, private funds, and other financial institutions doing?"

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Garnry stated, "I believe there are significant problems here regarding this and the direction the banking sector is taking."

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Following the announcement, Kelleher emphasized that while Ermotti's Swiss citizenship is a "nice thing," it wasn't the primary factor in the appointment choice. He emphasized the "significant execution risk" associated with carrying out UBS' acquisition of Credit Suisse, stressing that the new CEO is best suited to handle the challenge due to his experience.

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He said that Ermotti's designation had been communicated to the Swiss authorities.

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"It is obvious that regulators have the right to refuse. Therefore, we must ensure that Sergio has consent for this position," he stated.

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Ermotti indicated a desire in holding the role indefinitely and claimed that the upcoming duties coincide with his goals for UBS.

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"There is a sort of call of duty component in me, and I feel that. And, to be really honest, despite all of the debates over the size of the bank, I always believed that the next chapter I intended to write at the time was one in which I completed a transaction similar to this one."

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In the interest of the newly united bank, its stakeholders, and the larger Swiss nation, Hamers stated that he had resigned. He stated that in relation to its restructuring and potential layoff plans, the bank intends to "take away uncertainty as soon as we can."

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He minimized any dangers that might come from the size of the united bank:

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"I always say that the current big debate is too small to survive, not too big to fail."

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Kelleher agreed, noting that UBS's balance sheet is capital-light and that the group's aim is to quickly shrink Credit Suisse's non-core businesses. He emphasized the significance of balancing the perspectives of the two banks in a critical manner.

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"Credit Suisse and UBS have cultural differences. We don't want to bring a terrible culture into UBS," he said, pointing out that Credit Suisse's investment bank division was at the center of this cultural struggle.