UBS CEO: Surprise comeback, Credit Suisse, and winning

0:00So today we are very excited to welcome one of the most impressive leaders in global finance, Saggio Ermotti, CEO of UBS, which is one of the biggest banks in the world. Sergio led UBS from 2011 until 2020, but he recently made a dramatic return after the historic acquisition of the main rival Credit Suisse. But first, Sergio, we'll go all the way back.

0:31When you were even younger, you were a talented football player. So how come you ended up in banking? I wasn't so talented, obviously. So I guess, well, my dream was definitely, I would have swapped until today, probably playing a final of the World Cup and scoring a goal with my current job, for sure. So I guess my dream as a young person was definitely to be a professional football player. But then in Switzerland, we go through an education system that allows you to go through an apprenticeship. So I started in banking as a plan B, you know, to the football career. And so when it turned out that I wasn't good enough to be a football player or a professional one, at least, then I opted for becoming, being a trader.

1:25And so my career in banking started. Yeah. Well, I would argue you've got, you've scored quite a lot of goals, but it's just that is being in finance rather than football. But what happened? You got a very important position where you were only 27 years old. Yeah, that was probably the defining, one of the defining moments in my career because back then I went through an apprenticeship. I stayed in Lugano, the south of Switzerland, and I did a master in banking. And then I was hired by Citibank to be a trader for convertible bonds and options and so on. And I did it for 18 months, and then I got the famous offer you can't refuse from Merrill Lynch, which was not necessarily financial, was the ability or the opportunity to build up their Swiss franc capital market operation in Switzerland, 1987.

2:22So basically, from scratch, there was almost no office, no telephone. And me and another two or three colleagues, myself as one of the two leaders, took on the embarking to this journey of building from scratch the Swiss franc corporation that eventually got bigger. We went to the stock exchange. We got a banking license. And that was a fantastic journey. So I was training during the day, in the evening, sorting out, you know, how to manage the back office and how to manage the entire operation. Something's totally unthinkable today. And that was a defining experience because I learned how to manage, how to build up a business, how to, you know, look at different ways of being, you know, a leader and still being a…

3:14Why would that be unthinkable today? Because today, I would say the regulatory environment is completely different. Governance around large organizations is completely different. So giving to a 27-year-old person a mandate to build up such a business was probably, yeah, I think is unthinkable today, most likely. Yeah, yeah.

3:45fast forward to 19th of march 2023 when ubs agreed to buy credit swiss there was a big big turbulence in the market in the week up to this now what did you what did you think well seeing this from the sideline in a way at that stage yeah some kind of interested because i Even back then, I was a chair of Swiss Re, but also de facto as a banker or a former banker, I felt very sorry for seeing that situation developing. But I have to say that I never thought that it would hand so dramatically. Of course, until Wednesday, the Wednesday before the weekend there, that day when I heard that the Swiss Federal Council was in an emergency session, then I understood that something must be pretty bad.

4:42And actually, I knew that the weekend would turn out into something. So it's almost impossible that they make such announcements on special sessions of the Federal Council without something meaningful coming. But I have to say that the speed at which things developed was somehow tragic and surprising. Now, this was, in a way, the biggest fault since Slimer Brothers, right? So how shocked were you? To be fair, I think that we recognize, I recognize for many years that maybe Credit Suisse didn't have a sustainable business model. And in that sense, I was surprised that they waited for so long to take a radical decision.

5:35And as time went by, particularly after their capital increase in October, that didn't really go through well with investors, not only in terms of the placement of the stocks, but the strategy. I thought that they would try to find a buyer or to do a breakup or do something radical. So basically to let that external factors like the regional banking crisis would force them somehow to, you know, to have to take actions was a little bit surprising. But, you know, I think it was the bank and potentially even other actors. I mean, they were probably not on top of the situation for too long. I think Switzerland did a pretty good job during the weekend to avoid a Lehman-alike crisis.

6:30Because I think that one has to also put into the context that at least the lessons learned from the financial crisis has created plans, capital buffers, and that would not translate into an impossible mission for a private solution to happen. And also, which is our theory and it's proven, a wind down of Credit Suisse would have not costed the taxpayer any money. But of course, he would have created a lot of turmoils and uncertainties in the market because the question would have been very quickly, who's next, right? So what happens during a weekend like that? I mean, this is not an ordinary weekend.

7:11I mean, what happens in a country? Yeah, but for me, you know, I was still a half observer. Absolutely. But you were still, I mean, Swiss 3 is a very significant power in the financial industry. But in a weekend like that, where everybody gets together to solve a crisis, what is happening specifically? Yeah, it was interesting because, yeah, from Wednesday onwards, I started to get phone calls from, you know, former colleagues or competitors of the banks, right? The banks from people in the industry actually asking me what I thought about the situation. We were, of course, debating and discussing.

7:52And then during the weekend, I also got some phone calls during the process. but not from the UBS part, but there was a consideration about developing other plans. So I was somehow during the weekend prepared that something would happen. And yeah, I think that's what you saw is that de facto, very rapidly, the private solutions developing as the most viable one, the one that would create certainty developing. And so I have to say that Sunday afternoon when I heard that UBS was basically chosen as the solution, I was somehow relieved. Because I felt that having a public solution would have been quite damaging, not the right thing to do.

8:52And then things stayed quiet for a few hours until Monday morning. and then I got a phone call from... From the German? From the German, yeah. And what did he say? Yeah, he said that we need to talk. And so I suspect it was not probably just having a beer or just asking my advice. It could have been because we... But then we decided to meet on Tuesday and after a few minutes, it got pretty clear on the reason for the meeting. What do you think? Well, of course, I was, you know, on one end, I felt like, yeah, the temptation was a sense of loyalty to UBS, kind of call of duty, also to the country.

9:50You know, I felt honored that people were thinking about me. On the other end, you know, I had to find my own motivation. So, and my own motivation that I thought, and I still believe today that, you know, out of something that is definitely not ideal and quite tragic, we can do some things great. And eventually, something that can create long lasting value for shareholders, but also for clients and employees. Because, you know, on one end, you know, maybe for many of the Credit Suisse employees was an agony in the last few years. And I think that for the UBS employees, we now have an even stronger competitive position, more diversified business.

10:35Our clients will benefit, and I do think also shareholders will benefit over time. So I felt, okay, there is a... We think so too, by the way. Yes, good. But there was also a motivation for me to do something that was quite transformational for the industry. And so I got a good motivation. so it took me 48 hours to think about. Who did you speak to? Who do you take advice from? Well, I think I spoke to my wife, but after a few seconds she told me, but it looks like you're looking at my face. She felt that I already decided as I was talking to her. But no, honestly, a couple of friends I spoke to, but you know I have to say that none of them told me don't do it everybody was quite convinced that I should should follow but you you have been very successful at UBS and now going back and taking on something which is you know in part risky right what did you what did you think about that you know that was probably the the really deciding moment because I made a a very simple analysis.

11:50The reason I mentioned to you the sense of duty to UBS and to Switzerland played a role in making me feel like if I say no and things don't turn out well, not that I think I can resolve every problem, to be honest, but I would feel somehow co-responsible for not having the guts or being egoistic about not doing it for whatever my own reasons, right? So I felt I could not really feel comfortable about being in that situation. And then on the other end, I felt that if it turns out to be a success like I believe it is, I would feel stupid for not having to do it. So I said, I have no choice. I had absolutely no choice.

12:40I had to do it. So because I would feel most likely bad about any of the two scenarios. So the likelihood that we're going to be a non-event is very low. So I think that's in that sense, that was my rationale for taking the decision. And this sense of duty for your country, where does that come from, you think? Probably because we as the southern part of Switzerland, the Italian part of Switzerland is a minority. So it's probably also the first time that somebody from the south of Switzerland has such an important position. I don't know. I don't know. It's a good question. I love this. But I do believe there has to be some kind of sense of standing and demonstrating to the rest of the country that we are also.

13:37So did you do it on behalf of the Italian minority in Switzerland? Yeah. No, no, no, no. I did it because I believe. No, I mean, fundamentally, I think Switzerland is living out of diversity, between cultural diversity, the German, two-thirds of Switzerland. We are only 300 ,000 people out of 8 ,500, 9 million people, so definitely a minority. But still, with the French people, we have a very cohesive way of looking at it. But of course, you know, if you ask me, my spontaneous reaction is this one. Probably was something that I feel, you know, I can also contribute to that.

14:24Now, what did you do during the first weeks back at UBS? How do you enter a situation like that? Well, first of all, I have to say that it was quite surreal how things developed so quickly. I found myself into my office, old office within a week in the bank within 48 hours. Or basically, we announced it on the 29th of March. So basically, the next morning, I was in the bank. And it was so intense that I had to focus on the priorities. The priority was, OK, what do we need to do to stabilize the clients? What do we need to do to stabilize the employees? What needs to be done to really start to develop the integration plan?

15:20What are the priorities? I had to start to consider, okay, who is the team that is going to be with me? And one of the first priority for me from the very beginning was, okay, I need to fully understand what kind of risk we took on, what is the liquidity position of the combined bank, not only for risk management, but because my first priority, I told the board, was we need to repay as quickly as we can. the emergency liquidity support of the government, and we need to return the guarantee on the portfolio that was selected as a potentially problematic as soon as possible. And that was my number one priority.

16:04And why is that so important to pay that back quickly? Because that was, in my point of view, once we would determine that we have the strength and the ability to absorb any of the excess risk that we would find, and we are in control of that, that would be the ultimate way to reassure our stakeholders, clients, and in general, our employees and the rest of the community in which we operate. So the ability to say, okay, we took over, we are in control, we can do it with our own capital, our own liquidity, for me was the ultimate thing that we were comfortable about, our due diligence. So it took three, four months to do that, right?

16:51So to come. But for me, it was almost very clear from the very beginning. After a couple of three, four weeks, I realized that we would have a good chance to do that. You said that it was clear to you that Credit Suisse didn't have a sustainable business model. How could you see that? In a very easy way. It's very simple. There is nothing more dangerous than a large bank or a bank not making money or losing money. There is no capital, no liquidity, no matter what you think. If you have a bank that is either not covering its cost of capital or even worse, losing money, then you know that something is wrong.

17:31But in essence, for me, when you have a wealth management-centric business, an asset gathering, let's call it, right? A centric business with a strong position in the universal banking market in Switzerland, if you are not able to pay for your cost of capital, then you know there is a problem. And that was the case. But what was the problem? And why were they not making money? Because they were allocating too much capital to the investment bank below and with returns below their cost of equity. And because they were still relying too much on taking or using credit as a lever to go into business relationship, including wealth management, which is not bad per se.

18:24But, you know, if you are a wealth management or an asset gathering centric organization, lending is a tool that you give to clients, you know, to complete your offering. It's not the tool that you get in order to get into business. And, you know, Credit Suisse is very strong. Curious Suits has very good people, very good products, very good capabilities, and was seen over the last centuries and the last decades as an entrepreneurial bank. But in a sense, it became way too entrepreneurial and way too risk-taking in order to accommodate clients that over time it lost completely the disciplines on risk-reward and return on capital.

19:16What was the morale like in the workforce there? Definitely a lot of disappointment, a lot of angry people, a lot of people that were for different reasons. The one that they were absolutely not comfortable with losing their identity as an organization. The one that were totally pissed off because they lost a lot of their money.

19:44And so on and so forth. So the one that were absolutely uncomfortable with the idea now all of a sudden to be in the same house as the one they've been fighting for years and years. So it was a mix. But very, very quickly, I think that's people's, the vast majority, I would say. I think it's probably difficult to imagine from the outside because you've been competing for how many years? I mean, Kroeti-Twist and... 170 years. 170 years, right? one on each corner in every town in Switzerland, right? Yeah. And then suddenly you are going to be friends and family. Yeah. It's not so straightforward.

20:25Yeah, but my analogy I'm telling to people is to say, fine, we have been fighting for the national championships. Now we are the Swiss national team and we need to play for the bigger games. And therefore, that's a new mission. So, I mean... I mean, the reason we thought it was so attractive, the situation is because it's the kind of merger you can never do in peacetime. But look, in banking, all the mergers that creates any value are coming at moments of stress. Look back at the U.S. banks. You look back how they got now into their position. It's all about them being allowed or being asked during the financial crisis to grab or put together banks that were about to fail or they were failing and so on and so forth.

21:08So, and financial crisis, they come every so often. So, it's the waiting game, right? Yeah. So the issue is that it's a pity that it takes a crisis to create something that makes sense. But that's a reality. By the way, you know that a lot of M &A fails not because the industrial logic is not there, not because the financial logic is not there, not because blah, blah, blah, but because of chemistry of people not agreeing on governance or their own roles. So it's a pity. And then during a crisis, there is a winner and loser. And therefore, that kind of emotion goes out of the equation. And that's the reason you have the deals.

21:49So now we are one year later. What are your priorities at this stage? Phase one was the integration. The biggest priority right now is to go into the merger of the operating entities, the so-called parent company banks, UBS AG, Credit Suisse AG. You can imagine we have Credit Suisse bringing around 600 legal entities into the UBS framework. So we need to merge. Good time for Swiss lawyers.

22:21Moving on a bit here. What is it about Switzerland and banking? It's a combination. First of all, I'd completely changed and evolved in the last 30, 40 years. when I started my career at 15 was all based on banking secrecy and discretion. And now it's all about having professional services. I would say it's a combination of that, but also the reliability of the Swiss political system. It's not really the neutrality. It's more about the stability of the political and the rule of law that allows people the strengths of the Swiss franc as a currency, also gives a lot of confidence to people. So I think it takes a lot of, you know, reasons to get to why Switzerland is as big as, you know, it is punching well above its weight.

23:30but not only in banking. If you look at pharma, you look at food, you look at innovation, the universities, Switzerland is a country that punches well above its weights. Why is that, do you think? We invest a lot in education. I mean, at the end of the day, we have a pretty flexible and dynamic labor market and a very good education system, which are the prerequisite if you want to be successful nowadays. One other thing that I think is interesting is just since I started to work in finance in London, US investment banks have pretty much wiped away so much of the European competition. Why do you think that is?

24:14So during the financial crisis, de facto, with all the constraints and the lessons learned US regulators put on their US banks, one thing they made it clear, they wanted US banks to continue to be or to be the leading force going forward in the financial services industry. And so they allow them to grow. Europe did the contrary. Europe did everything they could have done to don't allow banks to be bigger or successful. And the fragmentation of Europe also from a political, not political, but I would say a regulatory and slash political standpoint of view without a capital market union, without a banking union, has prevented the creation of strong and alternative players.

25:11So the reason why we are now emerging as a David versus Golia is because we are a more capital light. We are able to, you know, of course, the Swiss business is very profitable, but it's a 9 million people country. So it can't really be as big as any major countries. But because our strength is the wealth management asset gathering angle. So few other banks in Europe can do that. But I do think that there is a political desire to not allow banks to become too big. Still a lot of parochial thinking in Europe about big banks. So each wants to have their own national champions, forgetting that winning the national championships doesn't take you very far in terms of global.

26:08Same with airlines. Yeah. How important has the corporate culture of UBS been? And what is, I mean, how would you define the corporate culture in UBS versus other banks? I think that we try to be very clear to our people. And it's funny because when I started in 2011, 2012, I was confronted with a lot of criticism by external people, even internally about where the culture of the bank, banks in general, the culture of the bank, not good culture, blah, blah, blah. So I try to really say, but is it true? Is it true that we don't have a culture? And when I started to look bottom up and top down, what we stand for, I realized that we had clearly some commonalities and things that we could build on.

27:01So what we did is to really make a big differentiation between, okay, now we look at people in terms of not only compensation but promotions in scoring alongside what people do and how they achieve their results and giving two scores making sure that in order to be a successful leader or member of the team going forward you can't be just great in one or the other you need to be good at both you've said that we need teamwork, but we cannot be friends all the time. What do you mean by that? Well, friends are not. I mean, I take my analogy from sports. And when I was playing young, I mean, it's not like every teammate was a friend.

27:48But, you know, but we had to have one thing in common. We wanted to win the game. And we wanted to make sure that all the people on the pitch would follow and give 100%. So that's what I mean is that we need to have common understanding of what we stand for and our goals. And we need to leave out the more emotional part, the friendship part. If it comes, it's good. I mean, my God, I mean, it's absolutely better to have it that way. And in some cases, it can be also dangerous because, you know, when you develop too deep of a personal relationship at work, it may over time be a conflicting element that doesn't allow you to be a credible leader, an unbiased leader.

28:36So you have to pay attention all the time how you balance the two factors. But of course, I can tell you that what I saw in the US is, I don't know if you heard that anecdote, it's fantastic. A colleague of ours was lost for the second time his kidney and so he needed desperately to find a second one and he got a group of UBS people volunteering to donate the kidney. So it must be that something's there developed beyond being just a colleague right so I have nothing against that but of course it's not something that we should force as an organization. You have been tasked also to find your own successor how do you go about doing that uh well it's not really i'm part of the process like i was last time the responsibility is for the board and it's it's really premature because right now i mean i made a commitment and the board wants me to to stay till the integration is over so very minimum the end of 2026 and then early part of 2027 and i think that you know it's it's part Part of my job, the CEO job, to offer a number of candidates.

29:57One has to be realistic nowadays to have more than two or three credible candidates is not easy. How do you... Well, why is it not easy? Yeah, because... I mean, Hugo, how many thousand people have you got in the bank now? No, but that's exactly the point is because no matter, I mean, as you go up, I'm sure you appreciate that you have a lot of very talented people, a lot of specialized people. So it's not easy to find the people that can then take a broader and more complete understanding of the business. And, you know, it's not just the technical issues. Also, there is the emotional leadership, the knowledge, the ability to live with stress, the ability to make decisions.

30:51So you narrow down things that, you know, when you go down in the organization, you can have extremely talented people and great professionals. But it's not always easy to then translate all of them into broad leaders for a more complex business. How do you develop them? For me, the most important issue, which I took from my days at Merrill Lynch, 17 years, is to really force myself as a manager and force also every each of us to, number one, think about what else can a person do in the organization. So one of the things which I think is good in my team, that a big number of the team members of the executive board could do another job in the executive team.

31:45So fungibility is very important. So be successful in your business. But how much and what we can do, we have to do. We have to push people at many levels in the organization to move around, to do other experiences. because I think at the very least they broaden up their horizons. At the very least, you incentivate cross-collaborations in the organization. But eventually, as time goes by, you develop better managers, better, more rounded managers. How long time does it take to develop a good leader?

32:22Defining good leader for what task? To take over UBS.

32:3220 years. That's exactly the same number as James Gorman said. Why? Yeah, okay, but it's very simple. It's just interesting. Yeah, you take 20, you start, let's say, mid-20s, you start and you say, okay, when you get into a level of matureness, and then it's mid-40s, early 50s, so it takes around that age. But do companies actually start that early? I mean, how many companies do that? We went, well, I remember Merrill, they were almost at a point in time doing even too much of moving people around. So you can argue that there is a value in stability. in many cases I found that it's more difficult for when you go down in the organizations managers at lower levels are very protective of their best people so I'm not so keen to see them going somewhere else in the organization so what I try to do not as successfully as I want yet but but still we are making some good inroad, is to force both the manager and the employee to mention two jobs they would want to do outside their comfort zone.

33:53So in order to avoid the feeling that as an employee or subordinate, you are not loyal to your boss, when you say that you would like to do something else, I force the manager also to say what do you think that person should do. Right. How often do you do that? Well, we try to put it into our HR system. And then now, you know, also using more and more and more the CVs, the artificial intelligence screening. When we look at CVs and we look at open positions, we try to leverage that one also in a way that when we have a talented person that says they would like to do something else, when we say, okay, it's time to force.

34:36In some cases, I forced myself. I forced people to take unconventional views on new appointments, taking talents from other parts of the bank. So I did it a few times in my first 10 years.

34:54What makes you an effective leader? I would say at the end of the day, the effective leader is the one that leads by examples and doesn't abuse the authority versus the, so you can get away with managing without authority. So, I mean, I'm not asking people to do things that they don't see me doing. And number two, I'm using very selectively authority. So I try to make sure that people smell the coffee before I have to say that I want something, right? And by doing that, usually you get more tractions and results. And tell me a bit more about how you, when you choose to use your authority and when you don't.

35:44What are the situations? in general when i lose my patience and it and it's when i think that the debate debates and you know goes on forever without any meaningful outcome then i step in and use more of the authority is that the italian blood i saw many nordics uh taking that way in my in my so it's not so

36:13what's been the most challenging leadership decision you made after you came back decision yeah

36:23well it's a little bit of a delicate question to be honest but it's always around people yeah the most delicate and the most complex are always around people the one you is the one thing I learned is that eventually it's always in my career, the regret is not having taken, not necessarily just always negative, also positive, not having onboarded the right person earlier than I could or shouldn't, or letting certain people in the job longer than I should have. The biggest regret that helped me in any case to develop is always mainly around people rather than through business decisions. You mentioned that coping with stress was an important feature of being a good CEO.

37:19How do you cope with stress?

37:23by trying to protect my weekends

37:30with family, social activities, skiing. I am the president of a small football club in the village where I live in Ticino, Lugano. So you haven't given up football totally? No, no, no. I can at least watch it. and I ski a lot in winter. So I really try to protect, so I rarely, rarely don't go home on Friday evening, right? So for me, it's very, very important not to mix the weekends and switching off. Also physically, what I do is really literally, I don't stay in Zurich or I always go to Ski or Angadin or I go to the beach with my wife or I stay in Lugano. But I don't stay a lot in Zurich during the weekend.

38:26But do you manage to take the whole weekend off, Saturday and Sunday? Not the full weekend? You mean not touching emails or not? No, it's almost impossible. Right. But it's a different way to work when you're home over the weekend. We have tens of thousands of young people listening to this. What would be your advice to young people?

38:49Well, look, the advice is always the same in my point of view. First of all, you know, it goes without saying, and probably the new generation don't need too much of that advice. But, you know, just you have to be passionate for what you do. I mean, you know, I never really did anything because I wanted to be a CEO, right? I mean, first of all, you must be quite sick if you think about early on in your career. I want to be a CEO. My baby is a dream. But very few people make it. So you need to work and enjoy what you do and be successful. And over time, maybe a career comes. If you just work for having a career or for the money, it's not going to be very nice.

39:37So be passionate about what you do. I remember when I was very young, I was waiting for the Monday to go back into the bank and trading, right? And for me, that was a passion. And the second one, I would say, be flexible and mobile in terms of making experiences outside your comfort zone, particularly the physical one. It's very easy today. You always have an excuse, boyfriend, girlfriend, whatever. You have your comfort zone, but, you know, making international experiences, going out and work somewhere else and in an uncomfortable zone, you know, having to learn a new language, having to do something that challenges you.

40:29It's very important to develop the personality and also potentially also from a professional standpoint of you. It goes without saying that the last things I do say, I don't know about constantly to our people at UBS, we invest a lot of money in keeping our people up to speed with the best developments to train them, to educate them. We have plenty of courses. But the first one who wants, needs to do investment in itself is the person. Don't rely on the state. don't rely on your company to make you a competitive person in the labor market. Rely on yourself. We can help you, we can support you, but don't rely on us.

41:23Well, Sadio, you for sure have relied on yourself. You have shown huge passion in UBS and in your country. And for sure, you've shown agility and flexibility by coming back for a second stunt. So big congratulations and it's been wonderful to talk to you. Thank you.

41:42It's my first to the Осias Now, to the world like IP camera coming, what the actual disponible has to be seen as Coca-Cola. Thank you.