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UBS CEO Ermotti Pinpoints Credit as Best Opportunity in Market

Marion Halftermeyer and Manus Cranny

(Bloomberg) -- UBS Group AG Chief Executive Officer Sergio Ermotti said investors are starting to take advantage of opportunities in the credit markets and beyond after recent volatility due to the coronavirus outbreak.

“Cash holdings were very high,” Ermotti said during a Bloomberg TV interview. “Having a large pool of cash available during this major correction has helped the investors manage and we do see people taking advantage of new opportunities.”

Ermotti said clients had been prudent before this month’s crash, and even now, they remain disciplined and are sticking to their long term asset allocation.

The CEO said the Swiss lender is preparing to exploit opportunities in credit, certain stocks, and sectors that have been hit by measures to contain the coronavirus. “There are not many times in history where credit has been priced so attractively,” he said.

The market turmoil caused by the coronavirus is prompting some wealthy clients to deleverage and that may reverse some of UBS’s lending growth earlier this year. UBS has seen margin calls across the industry on loans to wealthy clients and institutions. So far, there have been few losses on Lombard loans, which are secured by deposits or other assets.

Supportive Actions

Central banks and governments are acting very efficiently at this stage, Ermotti said, and UBS is actively working with governments and agencies worldwide in an effort to be part of a solution.

“I am glad, for once, that at least at this stage banks are not part of the problem,” Ermotti said. “Banks are stronger in this cycle, but we need to make sure we don’t infect the banking system with problems that will need to be resolved in the future.”

UBS is making several billion Swiss francs available to small and mid-sized companies as it backs Switzerland’s measures to help businesses hit by the pandemic.

“We don’t want to make a single cent of profit,” Ermotti said. “We are there to function as a mechanism for policy makers to transmit the liquidity.”

Ermotti, who is due to leave UBS later this year, stopped short of supporting the scrapping of dividends. Europe’s top banking lobby, lead by UniCredit SpA’s Jean Pierre Mustier, is trying to find common ground on whether to scrap dividends to conserve capital.

“At this time it is difficult to manage the process because of the stigma you may or may not create around any actions around this topic,” he said. “It is a delicate case.”

Rival Credit Suisse Group AG froze its plan to buy back as much as 1.5 billion francs ($1.52 billion) of shares this year. The Swiss regulator Finma has also called on banks and insurers to reconsider dividend payouts.

(Adds more details on market opportunities and UBS stance from fourth paragraph.)

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