Bloomberg: UBS CEO Ermotti Discusses Inflows, Credit Suisse

UBS Chief Executive Officer Sergio Ermotti discusses the Swiss lender’s financial results, its takeover of Credit Suisse Group AG, and his strategy. UBS attracted $28 billion from wealthy clients in the months running up to the takeover. Ermotti speaks with Bloomberg’s Manus Cranny in Zurich.
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Transcript

[CC may contain inaccuracies] welcome back to Bloomberg. Good to see you again this morning. Net new money for the bank came in at twenty billion dollars. Explain to me where it came from. And was there a material inflow from Credit Suisse?

Well, first of all, we were very pleased with the fact that at times of distress in the markets generally, the first quarter was very challenging. We’re still so clients looking at UBS as a safe haven and the inflows were coming in from all regions and from different sources.

And in that sense, we are very pleased that particularly also after the announcement of the transaction of the acquisition of Credit Suisse, we still so inflows are coming into our bank. So a sign of confidence of our clients. Seven billion came in in the 10 days

After the transaction closed. Was that Swiss money was not from Credit Suisse? Can we define that as Credit Suisse flow? No, it was generally across the board. And you can see that those numbers were also well diversified. I would say also one main driver was in the U.S.

So the confidence in this transaction was also shown by our international clients having stronger faith in our ability to execute 69 billion dollars went out the door in assets from Credit Suisse. You in this quarter and those 10 days after the deal got 7 billion dollars.

I’m surprised you didn’t get more. What do you say to that? Well, obviously, we can demonstrate that there is enough competition out there. So anybody fearing that this transaction creates too much concentration is wrong. So I think that we are pleased with the

Inflows we sell. We always say that we will not be the only beneficiary of this transaction. And the the numbers seems to show that there is certainly a move to money market funds. That’s happening at every bank. Do you think the dash to money market

Funds, the dash to that level of product is at peak? Do you think we passed the peak of that dash for cash in money market? Well, it is difficult to judge. I mean, what we have to do is to stay

Close to clients and do the best for them at this point in time. We do understand that at least part of their liquidity asked to go into money markets or treasuries because they have a better in some cases better ups in their in their in their yield. And so it’s very natural.

And we are helping clients to make the best choices. And we saw very strong inflows also in our own money market funds that we we manage within asset management. And in terms of the net interest income up by over 30 percent within wealth management.

So what goes through my mind is, are we at peak rates? Do you think rates will top out at 5 percent? You see a case for 6 percent. Some people are speculating in the US on the rate cycle while the case is online is only based on the fact that if you

See higher rates, it means that inflation inflation fights is is not successful and is necessary to go to that level. I would say that the priority number one nowadays is to fight inflation, even if it cost us a smaller recession. I believe that the social cost of high

Inflation over time will be much higher than having a slowdown in the economy. Do you think we’ll have a recession, a mild recession? We are. We are not ruling out that towards the end of this year and early part of next year, we may see a slowdown.

Yes. Let’s get to the elephant in the room, Credit Suisse, UBS. You are now the CEO. How confident are you? The deal closes in the second quarter. And what’s the biggest hurdle? Well, so far, we got the period, the Fed, the Swiss authority.

We are in advanced discussions with other key authorities to get the approvals for the transaction. We are still working and we believe that during the second quarter we will be able to close. The biggest obstacle is just we have to go through the processes. It takes time.

The share buyback is paused. For nine years we sat together. And we talked about dividend buyback, dividend buyback, dividend buyback. Here we are. We’re in a pause mode. People are saying to me 20, 26 before it restarts is not a reasonable guidance to the market today.

That is 20, 26 before you can smell a buyback restart. It’s too is too early to talk about buyback. I think what is important is to say that we oppose it and we haven’t cancel it. So our intention, as soon as we have more visibility about older numbers and

Our plans, we will have also a better view on our capital return strategy at this time. We are reiterating our intention to have a progressive cash dividend increase every year and we are definitely have intention to resume share buyback when it’s appropriate.

Is there a hurdle? Is there a milestone where you would say this this can help me back to restart the buyback? Is there some material hurdle to cross? The one material aspects in assessing capital returns? Is the solidity of our balance sheet and our liquidity position, which is critical to our business.

We will not compromise this. And and I think this is for us is possible to achieve both. We’re continuing to have a strong capital position and at the same time, saving very attractive shareholder returns. The chairman guided us at a number of times that the integration would take three to four years.

Is that a low ball and a low bar? Or again, is that a reasonable guidance? I think it’s reasonable guidance. I mean, this is a complex transaction. I think that. But he’s also a transaction that will offer a huge opportunity not only to our shareholders, but also to our clients.

The two franchises are extremely complementary and in many areas and and also to our employees. But in order to fully execute the transaction of this complexity, it takes time and we have to do the things in the right way. We should not hurry into doing things

That. And just the sake of closing the transaction in a couple of years earlier. Again, what what kind of milestone do you have? You thought about this? You’ve thought about this deal for many years. You, Axel WEBER. What is there? What is the milestone in your mind that

Says, I’m really succeeding in this integration? Well, for me, is is is a more emotional than numerical, I would say that in three to four years time. I like to see the employees of the combined organization in this country, our clients, to be very proud to be

Associated with UBS. There is a lot of social and political angst out there on bunch of strike zone around over this Swiss universal bank. Lots of people call me said they’re going to have to give up a piece of this Swiss universal bank. He’s going to have to IPO to appease the

People out there. Again, your response to that kind of speculation? I’m glad you met some of them. I mean, it looks like we have a lot of experts nowadays on how to run the banks in Switzerland. So I think that the only thing I can say

Is that we will take our time to make a decision based on facts and not based on emotions. And I’m sure it’s going to be a good transaction. Well, the facts are that you, in your tenure, downsize the investment bank and made it something that helps wealth management. Chairman again reaffirms investment bank

Will come down to 25 percent. So as you’ve done this before, you have knowledge of Credit Suisse. And my question is, how quickly, in real terms can you get an investment bank, Credit Suisse, integrated and dying to 25 percent of the group? Well, the blueprint is our blueprint.

Having say that Credit Suisse as also excellent capabilities that we were missing and we’ll be very complementary to our franchise. But one thing we won’t compromise is, is the way we do business, how we do business, and also the amount of resources in this case of risk weighted

Assets that we will allocate to to the investment bank. We’ll be a maximum 25 percent. What’s the jewel in the Credit Suisse crime that you really want to keep? Everything is Credit Suisse as a very strong franchise. And what I’m very pleased is that while

We have some overlaps in many regions and in many products, we have, we have a complementary skill set. You look at asset management, we’re going to be one of the leading asset manager now in the world. And thanks to complementary capabilities, even in Switzerland, we

Have complementary clients, franchises and and in an asset management from a regional standpoint of view. You look at Asia and also in Europe, we have complementing clients franchises. When will you go on the road? Are you talking to clients? Who are you talking to?

What pitch are you making to stay with the United Marty? Well, it’s not a united have not the group is UBS. And I think that’s the strength we have been demonstrating, the discipline we demonstrated in the last 12 years or so in in managing our our journey will be

The same one we want to pursue going forward. So, again, we are less. We are a less risky trade than you’ve been used to come to us. But but look, you know, at the end of the day, we have been demonstrating our

Strength in terms of KPI, ISE, capital liquidity and so on and so forth. The most important issue nowadays is to keep strong profitability and the thrust of our clients downsizing these combined institutions is going to involve, as you said, reducing risk weighted assets. But it’s also going to be a social cost

In terms of job losses. How quickly will that pain be felt across the group in your initial estimate at this juncture? This is by far the most painful part of the job. And but I’m confident that we will do that first, the full with full respect

Of the people involved, fair and as transparent as possible. Having said that, you know that we are particularly earrings. Switzerland is a pretty aging population. A lot of people are retiring in the next few years. And I’m pretty sure that we will label through that and also through natural

Attrition to mitigate at least the social cost. You come back into this bank bankroll. You left it in 2020. The world of banking. You’ve not been gone from the world of finance, but banking has changed. People say to me, it’s not 2008. What is this banking landscape out there for you?

Define it. Well, the banking landscape as change is evolving. But there is one thing in banking it has remained the same is trust and confidence of your clients and the employees that work for your organization. This is my focus to restore proud and and have an organization that, as I

Said, clients and employees can be proud to work for. Tell me this. We’re back in the banking home. Are you back in your old office? Yes. How does that feel? Good. Good feeling. I think I was very honored, but humbled about this new task I have.

And and the feeling is good. But also, there is a clear sense of responsibility to make sure that this things are in the right direction. Says your Marty. Welcome back to Bloomberg. Thank you.

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