UBS EMEA investment bank head surveys a changing environment

Javier Oficialdegui

Markets had a tough time in 2018, and deal-making plunged dramatically in the second half of the year. The environment is likely to remain challenging in the near term, which is why UBS's head of investment banking and capital markets in Europe, the Middle East and Africa (EMEA), Javier Oficialdegui, is redirecting the bank towards new hotspots in the market. The strategy is intended to capture new business by reinforcing certain sector and country teams.

When Mr Oficialdegui took up his post in November 2017, the market was on the brink of a shift. Financial institutions had taken up the lion’s share of capital markets bandwidth that year. Europe had seen a wave of huge bank recapitalisation manoeuvres with multi-billion-euro rights issues from the likes of UniCredit, Credit Suisse and Deutsche Bank, as well as the monetisation of bank assets via block sales and initial public offering carve-outs. This ticked two boxes for UBS. “Financial institutions group [FIG] coverage and equity capital markets [ECM] are in our DNA,” says Mr Oficialdegui.

Banking is a changed environment now, says Mr Oficialdegui, who had been head of FIG for the Swiss bank since 2012, having come from Bank of America Merrill Lynch (BAML), where he headed the Spain desk. When ECM and FIG deals dried up over the course of 2018, with mergers and acquisitions falling into favour in different sectors, Mr Oficialdegui set about beefing up targeted parts of the business where he expects activity to pick up.

“There has been a major shift in the fee pool in EMEA over the past 12 months towards sectors including telecoms, media and tech, healthcare, consumer retail and industrials,” he says. In terms of geographies, UBS has clear strengths in the UK and southern Europe, but here too the market has slowed down. “The UK remains a very important market, but over the past 12 to 18 months there has been a big increase in deals coming out of northern Europe,” says Mr Oficialdegui.

Attracting experience

UBS has three main engines: the UK, Germany and its home market of Switzerland. But it is underweight in the Nordics, a situation Mr Oficialdegui is looking to remedy. The reshuffled sector weighting in the market is here to stay, he believes, so he has set about hiring talent to be better equipped for the new reality. “We hired several senior managing directors in Germany and the UK, focusing on sectors such as infrastructure, industrials, healthcare and consumer retail,” he says.

In 2018 Mr Oficialdegui announced a slew of high-profile hires to this effect. Sebastian Pollems, who formerly led the chemicals division for Morgan Stanley in the EMEA region, joined to head up Germany and Austria alongside Philip von Malsen-Plessen. Ex-BAML banker Philippe Chryssicopoulos was appointed as head of power, utilities and infrastructure. To bulk up the consumer and retail industry team, Julie Sonies was tempted away from Deutsche Bank.

Adding senior bankers with many years under their belts is a theme for Mr Oficialdegui. “I am looking to hire experienced bankers who can add a lot of value and hit the ground running,” he says.

A question of succession

The hiring spree comes at a time when UBS has been in the spotlight regarding the eventual succession of CEO Sergio Ermotti within the next few years. The news in September that Andrea Orcel, a rumoured frontrunner to succeed Mr Ermotti, had been tapped by Ana Botín to take the top spot at Santander rocked the Swiss bank. A few months later, the appointment fell apart over the cost of matching Mr Orcel’s forfeited deferred compensation, with UBS refusing to pay out. Now there are rumours UBS may be eying another BAML alumnus, Christian Meissner.

Having strong teams is one thing, but it is increasingly important to build strong relationships between the sector and country teams. “The key is to be focused, but at the same time not siloed,” says Mr Oficialdegui, who adds that everything must run smoothly to protect dealflow and good client relationships.

“Investment in repositioning the investment banking and capital markets teams is one of the themes of my 14-month tenure, but the other critical component is increased intensity and focus,” says Mr Oficialdegui. He adds that most of the business is won in the very last mile, and that business selection has become more important than ever to ensure the bank is spending its time wisely.

Banking billionaires

UBS has a trump card in terms of attracting high-profile clients: its position as one of the world’s leading private wealth managers. One in two billionaires is a client, according to Mr Oficialdegui. Not only does UBS enjoy a dominant position in this field, it is a well-integrated private wealth bank, which creates good synergies with the investment bank. “A growing share of business for the investment bank is coming from this partnership. Private wealth clients require increasingly sophisticated advice and are also very active in capital markets,” says Mr Oficialdegui.

Research is another area where UBS thrives: it is “the largest seller of European equities to US investors”, Mr Oficialdegui notes.

In late 2018, the bank announced a big push into the US market for ultra-high-net-worth individuals, expected to include a hiring spree across the Atlantic. “It is clear that the greatest potential for growth is in the US,” says Mr Oficialdegui. “We haven’t been pulling our weight there, but we need to continue investing to reach critical mass.”

There may be a good reason why UBS has shied away from North America. The US Department of Justice fined the bank $780m almost a decade ago for helping US nationals evade taxes; a blow to the long-held Swiss banking secrecy principle. However, in 2010 the Foreign Account Tax Compliance Act came into force which, while burdensome, allows US authorities direct access to information about Swiss bank accounts, creating a more benign regulatory environment in which UBS can operate.

A brighter outlook?

It is no surprise UBS is looking for growth beyond Europe. In 2018, European investment banks took a beating, which was reflected in the year’s fourth-quarter earnings reports across the board. UBS’s $862m profit came in well below analyst predictions of $985m. The investment bank saw a loss of $47m, compared with a $46m profit the year before, citing economic slowdown and geopolitical tensions. “Especially in the fourth quarter, the market took a very big hit and activity nearly came to a halt,” says Mr Oficialdegui.

UBS was by no means the only casualty and strong results in the first three quarters of the year mitigate the recent loss. The start of 2019 has been better than anticipated, as markets seem to be normalising again. The geopolitical landscape has stabilised somewhat, with some rapprochements in the US-China trade war and opposition to a no-deal Brexit scenario. “The outcome of Brexit remains binary, so the risk is still significant,” says Mr Oficialdegui.

ECM is UBS’s bread and butter, but had a less-than-stellar 2018. Mr Oficialdegui sees ECM and debt capital markets (DCM) stabilising this year, particularly in the second half. The activity is likely to be concentrated around northern Europe, with the UK set for a big bump if a decent Brexit deal can be reached. “The pipeline for ECM and DCM is very healthy,” he says. “It is not that there is a lack of deals, rather that there needs to be a good window for issuers to execute.”