UBS ermotti

Head rolls at UBS

Oswald Grübel takes responsibility for the $2.3 billion trading loss at UBS and resigns as group CEO. He is replaced, on an interim basis, by Sergio Ermotti who joined UBS in April.
Time is up for Grübel (AFP)

After resisting calls for his departure for more than a week, Oswald Grübel resigned from his job as group chief executive officer of UBS over the weekend. He was replaced on an interim basis by Sergio Ermotti.

Grübel's future at the bank has been in question since the Swiss bank announced a multi-billion dollar loss related to equity trading earlier this month and his departure was not unexpected.

"Oswald Grübel feels that it is his duty to assume responsibility for the recent unauthorised trading incident,” said UBS chairman Kaspar Villiger on Saturday in a written statement. “During his tenure, he achieved an impressive turnaround and strengthened UBS fundamentally. He steps down having helped make UBS one of the world’s best-capitalised banks.”

On a media call after the announcement, it was mentioned more than once that UBS is one of the most highly capitalised banks in its peer group, as was the fact that it is operating in turbulent times.

UBS's quarterly board meeting was held in Singapore last week to coincide with the Grand Prix Formula One Race in Singapore of which UBS is a principal sponsor. The final decision regarding Grübel's departure and Ermotti's appointment was taken via telephone on Saturday.

Grübel was not asked to leave, Villiger said categorically on a media call after the announcement. The board tried to convince him to stay until 2012 to finalise the bank's succession plans. However Grübel felt that his immediate departure was warranted, given the magnitude and implications of the trading losses. Grübel will not receive a severance pay and his six-month notice period has been monetised so that he can step down immediately.

The outcome was not unexpected after UBS announced earlier this month that it would take $2.3 billion of losses due to unauthorised speculative trading in the equities department of its investment bank. The loss resulted from trading in various S&P 500, DAX and EuroStoxx index futures over the summer this year. However, Grübel had earlier said that despite the losses he still had the backing of the board, which had led to some speculation about whether he would continue. He came under increased pressure this past week after the Government of Singapore Investment Corp (GIC), which owns 6.4% of the bank, in a direct meeting with the UBS leadership called for him to step down.

Grübel was an outsider to UBS when he assumed charge as group CEO in February 2009, in a move the Swiss bank at the time said was a “step to restore stakeholder confidence and to pave the way back to success”. He succeeded Marcel Rohner, who resigned in the aftermath of the problems UBS faced due to the financial crisis. Grübel, who spent almost 40 years at Credit Suisse across both investment banking and private banking, came back from his retirement to join UBS and was widely seen as a good choice to lead the Swiss bank.

Ermotti is also new to UBS – he was appointed chairman and CEO for Europe, Middle East and Africa (Emea) and a member of the group executive board in April. From 2007 to 2010, he was UniCredit Group’s deputy CEO. He joined UniCredit in December 2005 to head the markets and investment banking divisions after a career of 18 years at Merrill Lynch. The release related to his appointment said that the board of UBS intended to “continue the ongoing internal and external evaluation process to find a permanent successor as group CEO”.

A question was asked about what the future holds for Carsten Kengeter, who has been chairman and CEO of the investment bank since November last year, a position that makes him directly responsible for the division that made the losses. "He did an excellent job to handle the crisis and covered the positions very quickly," said Villiger. "There are no doubts about the future of Kengeter." Villiger refused to comment on whether or not Kengeter was still in the running for the top job at UBS.

While announcing Ermotti’s appointment, the board also said that UBS will continue to operate as an integrated bank across wealth management, investment banking, asset management and Swiss retail and corporate businesses. However the “implementation of the investment bank's client-centric strategy, concentrating on advisory, capital markets, and client flow and solutions businesses”, will be accelerated.

"We are committed to further expanding our already leading global wealth management franchise. The investment bank will continue to strengthen its alignment with UBS's wealth management businesses, in addition to serving its corporate, sovereign and other institutional clients. In the future, the investment bank will be less complex, carry less risk and use less capital to produce reliable returns and contribute more optimally to UBS’s overall objectives," said Villiger.

The turn of events has led to speculation that UBS will spin off its investment banking division, reminiscent to similar speculation that was rife in 2008 in the wake of the financial crisis. However, some specialists have commented that at the current juncture UBS is more likely to scale back, cutting headcount and perhaps exiting certain areas, than trying to put the investment bank on the block.

Ermotti was asked whether he intends to exit or downsize the fixed-income business in particular. He replied that the business was crucial for serving UBS's clients, however the entire universe of investment banks is grappling with a new operating paradigm for fixed income. He was also asked what his ambitions for the investment bank are, given that the flow businesses on which UBS intends to focus are becoming highly competitive.

"We are not yet able to give details of the proposed restructuring," said Ermotti, promising to share them at the bank's upcoming investor day in mid-November. However, Ermotti stressed that he will not be focusing on league-table positions in investment banking as these are a dangerous goal.

In response to a question about whether the trading losses will affect jobs and remuneration outside the investment bank, Villiger said it was too early to comment.

“The UBS losses should not be unexpected on an industry-wide basis,” said CLSA US banks analyst Mike Mayo last week, when speaking at the CLSA Investors' Forum in Hong Kong. “This is expected to happen to at least one bank in a crisis – we just don’t know which bank,” he added, putting the entire matter in an unexpected perspective.

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