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(Bloomberg) -- UBS Group AG Chief Executive Officer Sergio Ermotti signaled that the world’s largest wealth manager has resolved its capital and legacy costs and shareholders’ focus is turning to returns.
“Investors are waiting for the time in which the capital buildup to fulfill regulatory requirements is over and the costs associated with legacy matters is addressed,” Ermotti said in a Bloomberg Television interview in New York. “We’re on a good path, we are almost there, actually we are there. Now people need to see the cash flow coming back through dividends or share buyback. ”
UBS has scaled back trading activities since the financial crisis to free up funds to comply with tougher rules on loss-absorbing capacity. With the bank now needing less cash for regulatory requirements and legacy legal issues, Ermotti is holding out the prospect of higher returns, telling shareholders in May that the bank may return to buybacks for the first time in a decade.
UBS is seeking to be judged as a wealth manager rather than an investment bank. In an earlier interview, Ermotti said that UBS “is basically the world’s most expensive investment bank and its cheapest asset manager.” He said late Tuesday that he was confident that the bank would be able to be “reclassified” in the “foreseeable future” once it starts boosting returns.
UBS has a policy of returning at least 50 percent of net profit to its investors if its capital ratio doesn’t drop below 13 percent. It could lower those ratios as long as it has enough capital necessary to sustain the business.
Like Swiss rival Credit Suisse Group AG, UBS has been stepping up lending in response to strong demand from wealth clients. Cash balances have begun to decline, as clients are becoming more willing to invest their money, Ermotti said, a positive sign for the bank. There is more willingness to deploy money in equities than bonds, he said.
Still, there’s a high level of “complacency" across all asset classes in terms of the risk premium that investors are receiving in return for the risks they take, he said.
Ermotti, six years in charge at UBS, didn’t rule out taking over from Chairman Axel Weber one day in the interview earlier this month, though he’s not expecting a change in their roles any time soon. UBS’s CEO and Chairman Axel Weber have previously said they will stay on for the next five years together.
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