The sober words used to describe the vote of no confidence in UBS' leadership hides something far more dramatic: shareholders no longer trust the bosses of Switzerland's largest bank. This makes it much harder to handle the wealth giant.
At face value, the shareholders' decision not to back the UBS bosses may look like just another warning to the likes of Axel Weber and Sergio Ermotti. They, the shareholders, expressed their concern about the legal case still pending in France, which may yet turn out an extremely costly exercise.
The «nyet» by shareholders in essence keeps them the option open to sue the management. In reality, the event is historic and may have much graver consequences: Chairman Weber and CEO Ermotti face a difficult situation after letting the bank's fortunes slide over the past two years.
A Problem That Reaches Far
In politics, leaders resign after a vote of no confidence – that's what the instrument exists for. The two top bankers by contrast see no reason (yet) to go. Weber emphasized in his statement that the shareholders concern was aimed at France only, a crisis that had nothing to do with today's management of the company. Is he right with this rather one-dimensional assessment?
The problem probably goes much deeper and is more multi-faceted. It is a fact for sure that there's not just a case in France, but that the bank is involved in many more legal conflicts across the globe, with risks attached. Such cases cost a lot of money and pare the bank's profits.
Cost Cuts
This is all the more problematic as the bank has failed to develop a strategy over the past two years that would have helped the bank move forward in a visible way, and which would have helped the share price recover. The singular progress made were mostly connected with cost cuts and had little to do with innovation that would have shown a bank not resting on past glory.
The bank's bosses have also lost a lot of their credit with the discussions about their – Weber's and Ermotti's – eventual succession. The statements of the executives sounded fairly uncoordinated and gave the impression that the top didn't actually know how to proceed in this key aspect. It probably contributed to the departure of several key managers from the bank.
Mounting Concern
All this together seems to have prompted shareholders to issue their vote of no confidence today, a sense of unhappiness also illustrated in the relatively low rate of approval of the compensation report. More and more shareholders seem to disagree with paying Ermotti 14 million Swiss francs a year, making him the highest-paid executive of Switzerland.
The «supertanker» UBS needs a fresh lick of paint and new personnel at the top, and today's vote makes this abundantly clear. With the two ailing bosses, Weber and Ermotti, who already once have failed finding suitable successors, it won't become an easier task. The other option – pretending that nothing has happened – won't do either of course.
Turning Point for CEO?
Today's vote may yet come to be seen as a turning point in the career of Sergio Ermotti. Once hailed as the new top manager and beacon of new hope, he has to concede that he failed in his task. And the same applies to Chairman Weber.
For Ermotti, today's vote must have hurt immensely – after all, he spent a year's salary on UBS shares, hoping to boost the stock with his public display of confidence. It proved irrelevant, because shareholders have different priorities at the moment.
