Rob “Killer” Karofsky will become co-head of asset management and head of the Americas at UBS. The new tasks could prove to be his downfall in the race to succeed Sergio Ermotti.
UBS is preparing for the post-Sergio Ermotti era. The major bank reshuffled its management team the week before last. The most important change was the appointment of Rob Karofsky as the new co-head of global wealth management, the bank’s largest and most important business area. In addition, the 57-year-old will be responsible for the Americas business, the most important region alongside Asia.
With this new job profile, UBS has positioned the American investment banker, who is little known in Switzerland, as a top candidate to succeed CEO Sergio Ermotti. Starting in the summer, Karofsky will head up asset management together with Iqbal Khan. He has long been considered a possible successor to Ermotti. Unlike Karofsky, however, Khan has spent practically his entire career in wealth management, for a long time at CS.
The fact that he was included in the CEO candidate carousel shows that Ermotti and the Chairman of the Board, Colm Kelleher, are finally tackling succession planning and appear to be satisfied with Karofsky’s performance to date. UBS is approaching the CEO search following the model of the major American bank Morgan Stanley, Kelleher’s long-time employer: internal candidates must first prove themselves at the top of various areas in order to be included in the CEO selection.
Karofsky, on the other hand, has made a career in fast-moving investment banking. He has headed the relevant division of UBS since 2018, and has been in charge alone since 2021. Because of his early successes as a stock trader at Deutsche Bank, the Wall Street native is nicknamed “Killer Karofsky.” Recently, things have been going well under his aegis at the UBS investment bank, with the number of transactions increasing, as have revenues. And the integration of selected CS units is also practically complete.
Why the super-rich need investment banking
Karofsky’s time as an investment banker will soon be over – two internal successors have been appointed and will take over his role as co-CEOs. But UBS has a great interest in Karofsky not only advancing asset management, but also further strengthening the ties to the investment bank.
Especially in the sought-after business with ultra-rich clients, so-called ultra-high-net-worth individuals with assets of 30 million dollars or more, and with family offices that manage the money of rich families, the boundaries between business areas are becoming increasingly blurred.
Such clients with “complex needs” often have to be looked after across both areas. They not only want their private assets managed, but often also need financing solutions or access to the capital market. In Asia in particular, many wealthy people are entrepreneurs. To serve this lucrative clientele, Karofsky has set up a dedicated department, Global Family & Institutional Wealth.
Very wealthy clients also want to invest more and more in private investments that are difficult to access because they are not traded on the stock exchange. “Discussions about private market deals are unavoidable,” says Gabriel Castello, head of private banking for Switzerland and Europe at the major British bank HSBC. Only a capable investment bank in conjunction with asset management can provide access to such deals, says the experienced banker, who also worked for many years in wealth management at UBS.
For the interaction between asset management and investment banking to work, however, not only a corresponding department is needed. According to Castello, it is just as important that there is a “culture of cooperation, discipline and established processes”. In particular, the handling of confidential customer data and compliance between different business areas and countries is causing headaches for banks. There is hardly a global bank today that really masters this interaction between the areas.
For Johann Scholtz, banking analyst at Morningstar, there is no doubt that an investment bank is needed to be competitive with family offices and super-rich clients. But at the same time, UBS must limit its investment banking activities. Chairman of the Board Kelleher stresses that UBS does not want an independent investment bank and is not expanding one. The bank is concentrating on advisory services that do not tie up additional capital.
In order to maintain a conservative risk profile, UBS has therefore committed itself to not allowing its investment bank to account for more than a quarter of the risk-weighted assets on the balance sheet. This self-restriction can become a problem. The ability to advise on transactions with internal teams is very valuable, says private banker Castello. “But you also have to be able to borrow money and make balance sheets available on a large scale,” he says.
Making the balance sheet available for customers means taking risks that could harm the bank. After its rescue in 2008 and the CS takeover, UBS is no longer willing or able to afford this because of its pronounced risk culture. For example, UBS is said to be more restrictive in lending in asset management than Credit Suisse used to be. Apparently, this is one reason why certain very wealthy customers are doing less business with UBS and are looking for alternatives.
Trojan Horse America Business
But Karofsky not only has to keep the super-rich on board, he also has to lead the difficult North American business, especially in wealth management, to success. His predecessor, Naureen Hassan, has shown little improvement in her short tenure as Americas boss since 2022. Profitability there has traditionally been low, but the situation has recently worsened. Most recently, UBS posted its lowest quarterly profit in over a decade in American wealth management.
On the one hand, this has to do with the American brokerage model, in which financial advisors are much closer to the client than the bank. As a result, advisors act primarily in their own financial interests and seek to maximize fee income. On the other hand, UBS’s repeated efforts over the years to change incentive structures or the brokerage model have borne little fruit. The USA remains a market with a lot of potential but little return.
The chances of turning the American wealth management business around are not good, says banking expert Scholtz. The market dynamics in the USA will not change. In addition, UBS has to hold its own against very strong competitors. UBS is also lagging behind the major American banks Morgan Stanley, JP Morgan Chase and Bank of America in wealth management. Scholtz therefore believes there is not much to be gained for UBS in North America. “The simplest thing would be to sell the wealth management business there,” he says.
An American investment banker as UBS boss?
However, given Ermotti and Kelleher’s ambitions for the American market, a withdrawal is unlikely. Karofsky will therefore have no choice but to demonstrate some success in the American business if he wants to have a chance in the CEO race.
He has already outlined his goals for investment banking to the Wall Street Journal. UBS wants to be number 6 and not compete with the Wall Street giants. UBS should be the best among foreign investment banks. But even this seemingly modest goal will not be easy to achieve. UBS is ranked 12th in the league tables for the USA.
It is unclear what goals Karofsky will define for wealth management together with Iqbal Khan. However, it will probably take several years before he can present the first results for the American market. The race to succeed Sergio Ermotti will pick up speed as early as 2026. Observers point out that it will be easier for Khan to show success in Asia during this period than for Karofsky in America.
There are also question marks as to whether a trader like Karofsky can really be successful in the “people business” of wealth management. But this view could be outdated. Although wealth management for wealthy clients is a completely different business than investment banking, there is also an increasing overlap in terms of personnel.
Gabriel Castello notes that, particularly in the Anglo-Saxon world, more and more investment bankers are seeking to move into wealth management. “The intensity and focus on results of investment bankers are an advantage in wealth management,” he says. However, they often have to adopt a more holistic and collaborative approach.
Karofsky does not have much time to make a name for himself as UBS’s top private banker. Another unknown is how he will work with the ambitious Iqbal Khan, who is almost ten years younger than him. Karofsky has performed well so far, and Sergio Ermotti is also said to feel a close bond with him because they have a similar career path.
But now the cards are being reshuffled. Karofsky will have to do a lot of convincing inside and outside the bank if he, as an American investment banker in his late fifties, wants to have a chance of being put at the head of the only major Swiss bank.