WEBVTT - Sergio Ermotti Talks Markets and Bank Earnings

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. After a good set

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<v Speaker 1>of quarterly results, what are you most proud of?

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<v Speaker 2>Well, first of all, I'm proud that we made very

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<v Speaker 2>good progress in the integration, and so we significantly now

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<v Speaker 2>reduce the risk of the integration itself. And we did

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<v Speaker 2>that while les staying close to clients deliver very good

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<v Speaker 2>financial results, which makes me comfortable.

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<v Speaker 3>That we are on a good way to deliver on

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<v Speaker 3>our twenty twenty six financial targets.

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<v Speaker 2>Of course, it's going to take a lot of time

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<v Speaker 2>to restore the profitability because the amount of task to

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<v Speaker 2>be done is huge, but I'm confident that we are

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<v Speaker 2>on a good way to deliver.

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<v Speaker 1>There's always this overhang about the capital requirements that regulators

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<v Speaker 1>are talking about. You've been very vocal about it. How

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<v Speaker 1>do you see it playing out?

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<v Speaker 2>Well, OK, we started technical discussions with all interested parties.

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<v Speaker 2>We will see how it comes out. I think that

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<v Speaker 2>we are all for making the system more resilient, more safe.

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<v Speaker 2>On the other end, we have to recognize that the

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<v Speaker 2>current system has served us well, so so much that

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<v Speaker 2>we were able to step in and rescue Credit Swiss,

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<v Speaker 2>so we need to look at the lessons learned from

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<v Speaker 2>this crisis, but also on the other end, we need

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<v Speaker 2>to ensure that the outcome is proportionate and is also

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<v Speaker 2>one that allows us to continue to be a driver

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<v Speaker 2>of growth and well being for the Swiss economy.

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<v Speaker 1>So your biggest concern, I mean, at any point, could

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<v Speaker 1>it touch dividend or shareholder buybacks?

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<v Speaker 3>I don't think this will happen.

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<v Speaker 2>I think that in any case, it's premature to speculate

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<v Speaker 2>on the outcome.

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<v Speaker 1>I know that there's a number of ways, of course,

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<v Speaker 1>of dealing with this if something big were to happen

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<v Speaker 1>in the space. One of them is probably a sort

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<v Speaker 1>deals our regulators have they given you agree light on them.

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<v Speaker 2>Well, look, you know, I don't think this is srt

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<v Speaker 2>R something that can be used in a focus and

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<v Speaker 2>selective way to manage economic risk and not to manage

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<v Speaker 2>a regulatory capital issues per se.

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<v Speaker 3>So in that sense, I don't think it's a solution.

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<v Speaker 1>What is there a solution that you're looking at to

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<v Speaker 1>kind of minimize the impact on UBS.

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<v Speaker 2>I think it's premature to speculate because we don't know

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<v Speaker 2>really the outcome of the discussions. We will find out

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<v Speaker 2>probably late this year, early part of twenty twenty five

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<v Speaker 2>the direction of travel and then we can make an assessment.

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<v Speaker 1>Serger, talk to me a little bit about wealth management.

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<v Speaker 1>So there's been a number of high profile people. Iball,

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<v Speaker 1>for example, is moving to Asia. What's your biggest hope

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<v Speaker 1>for wealth and in what region?

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<v Speaker 3>Well, Iqbal has moved to Asia with his family. So

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<v Speaker 3>I think we continue.

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<v Speaker 2>To see Asia, China and the US as a big

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<v Speaker 2>driver of growth. They are very important elements of our strategy,

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<v Speaker 2>together with our position in Switzerland as a leading universal bank.

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<v Speaker 2>And we you so also in the second quarter results.

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<v Speaker 3>But overall that.

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<v Speaker 2>Asia continues to be a pretty good secular driver of

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<v Speaker 2>growth for our business.

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<v Speaker 1>What about the US?

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<v Speaker 2>The US we are I'm glad we are making good

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<v Speaker 2>progress with some initiatives to make the A, B and

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<v Speaker 2>wealth management working closer together. This has helped our transaction

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<v Speaker 2>activities in wealth management. We are also preparing the platform

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<v Speaker 2>to institutionalize more of our client relationships. So and now

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<v Speaker 2>with the new leadership team with Rob Kurowski, we are

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<v Speaker 2>really preparing for the next phase.

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<v Speaker 3>Of our plans.

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<v Speaker 2>And I'm confident and that we will improve our results

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<v Speaker 2>in the US in the foreseeable.

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<v Speaker 1>Future quite quickly.

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<v Speaker 4>How aggrossive do you want to be in the US internmal,

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<v Speaker 4>I think we have a plan and we set our

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<v Speaker 4>plan that we believe we need to get to meet

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<v Speaker 4>teams protect profit margins in the next two or three years,

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<v Speaker 4>and then from their own words, we will look at ways.

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<v Speaker 3>To improve further. But it takes time to do that,

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<v Speaker 3>you know. Of course, the environment is not really favorable.

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<v Speaker 2>We need to do things with sustainability in mind, and

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<v Speaker 2>not just to him to do quick wins.

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<v Speaker 1>I mean, are you looking at potential acquisitions or will

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<v Speaker 1>most of everything will be so organic?

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<v Speaker 4>Now?

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<v Speaker 2>We have to we have to do our own work

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<v Speaker 2>and fix the issues we need to fix and.

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<v Speaker 3>And leverage better the capabilities we have.

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<v Speaker 2>Right now, and they are enough driver of growth and

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<v Speaker 2>for us in the foreseeable future.

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<v Speaker 1>Do you see any M and A on the cards

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<v Speaker 1>you ready to acquire even something small?

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<v Speaker 2>You're quite busy with MNA right now, so it's difficult

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<v Speaker 2>for us to think about M and A.

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<v Speaker 3>So I think that we have enough on our plate.

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<v Speaker 1>Yeah, that's fair, Serge. When you look at the week

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<v Speaker 1>that was, it was pretty volatile or actually pretty extraordinary

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<v Speaker 1>for markets. I don't know whether we still understand fully

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<v Speaker 1>the underlying reasons, But has it changed the way that

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<v Speaker 1>you see the markets in the next six months.

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<v Speaker 2>Not dramatically, but I think, I guess for the markets

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<v Speaker 2>and for many investors, what happened early on this month

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<v Speaker 2>has been a a wake up called right, So, I mean,

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<v Speaker 2>you look at the magnitude of the movements should make

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<v Speaker 2>people think carefully about having a proper diversification and being

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<v Speaker 2>very thoughtful about the way you invest money. So in

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<v Speaker 2>that sense, the fact that we have basically made back

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<v Speaker 2>everything in one week or two cannot be taken as

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<v Speaker 2>a you know, temporary issues. In my point of view,

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<v Speaker 2>one has to really think that probably is a sign

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<v Speaker 2>of some elements of fragility in the system.

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<v Speaker 1>Does it get easier as maybe we get a FED cut,

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<v Speaker 1>or does it get more complicated as we go to

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<v Speaker 1>the US election?

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<v Speaker 3>But look, you know.

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<v Speaker 2>When central bank cuts, it depends how they cut and

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<v Speaker 2>why they cut. So if you know, of course there

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<v Speaker 2>is now capacity probably to accommodate cuts based on lower inflation,

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<v Speaker 2>but it's also you know, we need to watch exactly

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<v Speaker 2>also what are the underlying economic drivers and to the

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<v Speaker 2>extent that the FED is forced to cut more aggressively

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<v Speaker 2>because of economic downturns. That would not really be good

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<v Speaker 2>for the market. So we need to really watch why

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<v Speaker 2>rates would come down and how quickly they come down.

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<v Speaker 2>In general, we do expect and we see room for

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<v Speaker 2>a potential raid cuts in the foreseable future. But I

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<v Speaker 2>wouldn't really be in the camp of predicting that the

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<v Speaker 2>FED will go as far as the market.

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<v Speaker 3>Wants the FED to go. Why is that well, because.

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<v Speaker 2>I think that probably the market is used to see

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<v Speaker 2>central banks stepping in every time and being very accommodative

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<v Speaker 2>in the previous cycles, and I think right now is

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<v Speaker 2>quite clear that central banks are focused also on inflation,

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<v Speaker 2>and therefore they don't have so much capacity to go

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<v Speaker 2>as far as the market may want to see.

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<v Speaker 1>Is the US election during the game in town? I mean,

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<v Speaker 1>it could change depending on who's in the White House,

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<v Speaker 1>regulation for banks, it could change even central bank independence,

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<v Speaker 1>tear of trade wars.

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<v Speaker 2>Yeah, look, yes, but if US election would be the

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<v Speaker 2>only game in town, we would be in a pretty

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<v Speaker 2>good place in the world.

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<v Speaker 3>So I think that.

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<v Speaker 2>Administration changes every four years or so, and that we

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<v Speaker 2>are used to do that to see that. So I

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<v Speaker 2>think that unfortunately we have many other problems, particularly geopolitically

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<v Speaker 2>humanitarian issues we have across the ward. So I think that,

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<v Speaker 2>of course you have to expect a little bit of

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<v Speaker 2>volatility around the upcoming election in the US, but it's

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<v Speaker 2>you know, it's not gonna it's not going to resolve

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<v Speaker 2>all the issues that we have on the plate right now.

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<v Speaker 3>But I'm confident that you know we are for us.

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<v Speaker 2>I mean, we have a business model that has been

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<v Speaker 2>able to be to show resilience and actually success even

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<v Speaker 2>in a moment of stress.

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<v Speaker 3>And that's the most important issue for us.

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<v Speaker 1>So you're telling me what the world is changing because

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<v Speaker 1>of these poly crises? Is that fair? And what does

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<v Speaker 1>it mean for a bank like UBS, Well, it.

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<v Speaker 2>Means that the necessity for us to stay close to

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<v Speaker 2>clients and continue to advise and as I mentioned before,

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<v Speaker 2>they've helped them to diversify and manage the risk. It's

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<v Speaker 2>crucial and that's the reason I believe that in those

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<v Speaker 2>moments we are seen as a safe event, as a

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<v Speaker 2>place to go for advice, and I'm glad that our

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<v Speaker 2>people are doing that while also absorbing a huge task

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<v Speaker 2>of integrating credit suite. So and I believe we are

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<v Speaker 2>ready for that kind of environment.

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<v Speaker 1>Do you think it's also changing client behavior? There's been

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<v Speaker 1>a lot of focus on private markets. How does that

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<v Speaker 1>interplay actually change and what does it mean for ubs now?

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<v Speaker 2>The big change in client behaviors we saw in the

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<v Speaker 2>last twenty four months was clearly more diversification towards fixed

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<v Speaker 2>income and so on and so forth. When the rates

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<v Speaker 2>comes down, of course, maybe part of it will go

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<v Speaker 2>to search for higher yield and maybe in private credit,

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<v Speaker 2>but not only. But we do believe that as rates

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<v Speaker 2>come comes down, you will see also potentially people moving

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<v Speaker 2>back to more alternative assets.

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<v Speaker 3>And also, which is important to.

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<v Speaker 2>Understand the ed winds we face in the industry, but

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<v Speaker 2>also at ups in NII in margins on interest rates

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<v Speaker 2>will be also upset by clients taking more leverage potentially.

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<v Speaker 2>So it depends how it plays out.

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<v Speaker 3>It depends what are the underlying economic dynamics.

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<v Speaker 1>Do you worry that there could be a systemic risk

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<v Speaker 1>for semi systemic risks?

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<v Speaker 3>I don't think so. No, I don't think systems. I

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<v Speaker 3>don't see systemic risk.

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<v Speaker 2>But volatility high volatilelyy doesn't mean that you have systemic risks.

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<v Speaker 1>But what does it mean high volatility means.

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<v Speaker 2>You need to have higher volatility. I mean to be honest,

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<v Speaker 2>I think if you look at high volatility can be

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<v Speaker 2>an absolute or a relative concept. So because we have

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<v Speaker 2>seen solo volatility in the last few quarters, you know,

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<v Speaker 2>I do believe we see higher volatility. If this is

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<v Speaker 2>very high and permanently, it's another matter. But I do

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<v Speaker 2>believe we're going to see more volatility.

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<v Speaker 1>So it can be quarterally results. If I don't ask

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<v Speaker 1>you about hiring or actually job losses, can you give

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<v Speaker 1>us an update on what the next six and then

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<v Speaker 1>twelve months will bring.

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<v Speaker 2>Well? You saw that, you know, the restructuring and fixing

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<v Speaker 2>the elements of problems in the integration are unfortunately driving

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<v Speaker 2>job losses. We are we took down around three thousand

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<v Speaker 2>counties quarters, so I think that we will continue to

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<v Speaker 2>do that in order to restore the profitability UBS had

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<v Speaker 2>before the appeisition.