To read some accounts of Andrea Orcel's time at UBS, you might think it had been an unmitigated success. The Financial Times speaks glowingly of Orcel's, 'successful stint turning round UBS’s investment bank.' The Wall Street Journal notes that he helped streamline an investment bank that had "ballooned" before the financial crisis. Euromoney says Orcel "outperformed expectations" at the Swiss bank. Really?
In one important sense, Orcel did UBS a great service. In 2014, the year in which he took charge of UBS's investment bank, costs accounted for 99% of revenues, profits were CHF87m and the return on attributed equity was 1.2%. In 2017, profits were CHR1.2bn, costs were 83% of revenues and the return on attributed equity was 13.4%. All hail Andrea.
While 2014 was certainly a miserable year as the Swiss bank, the year prior to Orcel's reign looked better than 2017. Back then, the bank generated CHF2.3bn of profits, a nearly 29% return on attributed equity and had a cost ratio of 73%. On this basis, maybe Orcel wasn't quite so transformative after all?
What's less equivocal is that Orcel presided over a transformation of UBS which saw it go from being a bank that ranked second globally in cash equities in the second half of 2014 (according to Coalition) and third globally for futures and options, to a bank whose equities business looked more like an also-ran in the first half of 2018. As banks like J.P. Morgan built market share in equities trading, so banks like Orcel's UBS seemed to lose it.
Nor were there any great improvements in the M&A division which is Orcel's specialty. In year-to-date 2018, UBS ranks 10th in EMEA for combined M&A, equity capital markets and debt capital markets activity according to Dealogic, the same as in 2014. During the same period, UBS slipped from 14th to 15th for U.S. M&A, and remained a solid second in Asia. On this basis, Orcel's reign looks like an exercise in treading water rather than a fiery taking of new ground.
Not that you'd necessarily know it. Orcel - whose London home features (or at least featured) a large picture of someone bearing a strong resemblance to him on one wall - rebranded the investment bank's overall shrinkage as an achievement. In 2014 he declared that UBS was a "Ferrari" compared to other banks' "Fiats": small, fast and focused instead of torpid and all about volume sales. Then, in July 2018, he said UBS was like the Croatian football team that nearly won the World Cup, but didn't: a small bank, with big dreams and the promise of out-performance. In fact, UBS's bankers woefully under-performed rivals in the first half of this year.
It wasn't for want of trying. In April 2018, Orcel mandated that every managing director in UBS's investment bank needed to have 250 face-to-face client meetings a year, amounting to approximately one every working day. Senior bankers were reportedly up in arms. Nor was UBS's weakness in U.S. investment banking the desired outcome. - From the start of his reign, Orcel wanted to grow aggressively in the U.S., an intention he reiterated this April with the promise to double the number of client-facing bankers UBS employs in the country.
Part of the problem was that not everyone warmed to Orcel's approach. "I accept that UBS investment bank and its culture is not for everybody. But if you choose to work here, the expectation is that you are fully committed to the vision, the strategy and the culture,” said Orcel in July. Insiders say Orcel was a divisive figure whom UBS bankers either loved or hated and whose tendency for favourites created unnecessary politics. Morale at the investment bank was allegedly low, and the departure of dealmaker William Vereker in July to work as a Brexit ambassador was a blow. Some of UBS's long-established bankers simply kept their heads down and tried staying out of his way.
In the circumstances, Orcel's exit may not be too much of a bad thing. The fact that his replacements include the bank's global head of equities, Robert Karofsky, and Piero Novelli, a "low-key dealmaker," looks like a tacit admission that the equities business needs attention and that the investment banking division could do with rather less ego. UBS is presumably still hiring. With Orcel gone, rival banks' dealmakers may want to give it a look.
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