by Liam Proud via Reuters Breakingviews
New bank chief executives often inherit messes. Credit Suisse’s Thomas Gottstein took over after a spying scandal, while Citigroup’s Jane Fraser and HSBC’s, Noel Quinn are pruning their global sprawls in search of a higher valuation. The new broom at Switzerland’s UBS, Ralph Hamers, has no glaring problems to fix, which may explain why his strategy looks a little underwhelming.
Second-quarter results on Tuesday demonstrated a rare European bank that’s purring. Revenue rose by 21 per cent to $9 billion, helping the Zurich-based lender to a 15.4 per cent annualised return on tangible equity. At just over $50 billion, its market capitalisation is roughly the same as its assets minus liabilities. European banks on average trade at about two-thirds of forward tangible book value, according to Refinitiv.
Perhaps understandably then, Hamers is holding off from shaking things up. Much of predecessor Sergio Ermotti’s executive team is still in place. Last quarter Hamers unveiled a renewed strategic focus on digitalisation and environmental, social and governance concerns. But investors will have to wait until the fourth quarter to find out exactly what he means by “reimagining the power of investing”, part of UBS’s new corporate purpose. For now, the key financial targets remain the same, and his targeted $1 billion of cost savings will be reinvested rather than handed to shareholders.
Hamers could look at things in a different way. His bank is trouble-free compared with European rivals. But relative to Wall Street competitors like Morgan Stanley and Goldman Sachs, it looks bloated. Operating costs will eat up about three-quarters of revenue next year, based on Refinitiv median estimates, compared with two-thirds on average for the Americans. Both peers fetch chunky premiums to book value, implying considerable upside if Hamers can slash costs and mimic their higher returns.
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