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(Bloomberg) -- UBS Group AG Chief Executive Officer Sergio Ermotti is responding to investor demands for higher returns with the bank’s first share buyback since the financial crisis.

The world’s largest wealth manager will repurchase as much as 2 billion Swiss francs ($2.1 billion) of stock over three years, committed to growing its dividend and expects to return excess capital to shareholders as it boosts capital. The bank is also combining its two wealth management businesses into one, appointing Martin Blessing and Tom Naratil as co-heads.

Now in his seventh year as CEO, Ermotti has accelerated a push into wealth management, boosting capital levels and profitability and stoking investor demand for higher returns and an update to targets that the bank had already met or which had become obsolete. The bank had approached investors and analysts in recent weeks to gauge whether it should give a more formal strategy update, people with knowledge of the matter said last week. It held its last strategy update in 2014.

“The word buyback will probably excite a number of people but it is a small buyback,” Neil Smith, an analyst at Bankhaus Lampe, said by telephone.

The appointment of Blessing and Naratil as co-Presidents of a new combined business to be known as Global Wealth Management puts two potential successors to Ermotti at the top of the bank’s most important unit, responsible for the bulk of UBS’s pre-tax profit. The merger follows the appointment of former Commerzbank AG CEO Blessing to lead the international wealth unit after Juerg Zeltner, a 30-year veteran of the bank, announced his departure in December.

Tax Charge

The bank booked a 2.2 billion franc net loss in the fourth quarter because of a change in the U.S. tax code which caused it to take a charge of 2.9 billion francs. Banks including Citigroup Inc., Deutsche Bank AG and Credit Suisse Group AG also all disclosed one-time charges.

UBS has scaled back trading activities since the financial crisis to free up funds to comply with tougher rules on loss-absorbing capacity. The bank now has more certainty on regulatory requirements and legacy legal issues after European regulators in December decided on global capital standards. The lender has a CET1 ratio -- a key metric of financial strength -- of 13.8 percent and said it intends to operate with that at 13 percent.

The bank changed a target of returning at least 50 percent of net profit to shareholders providing its capital ratio remains above 13 percent. Instead, it committed to growing the dividend by mid-to-high single digit percent per year. The bank’s last buyback was in 2007.

“What we’re doing is basically have a very flexible capital return policy with an attractive dividend and also an opportunity to compliment it with a share buy-back,” Ermotti said in an interview with Bloomberg Television.

Singapore’s sovereign-wealth fund GIC Pte ceased being the biggest shareholder in UBS in May after cutting its ownership by almost half, saying it was “disappointed” that it lost money during the near-decade it was invested in the Swiss bank.

Other highlights of the earnings statement include:

  • Fully applied CET1 ratio rises to 13.8%
  • 2.87 billion-franc charge related to U.S. tax law changes
  • Targets asset management growth of 10 percent adjusted profit growth per annum
  • GWM aims for 2-4% net new money growth
  • Will make exceptional payment to own pension fund
  • Targets cost to income ratio of less than 75%

To contact the reporters on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net, Jan-Henrik Förster in Zurich at jforster20@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel

©2018 Bloomberg L.P.

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