UBS AG, Switzerland’s largest bank, named an interim chief executive officer after Oswald Gruebel resigned the post in the wake of a $2.3 billion loss from unauthorized trading.
Gruebel, who held the top job since February 2009, will be replaced on an interim basis by Sergio P. Ermotti, the bank’s CEO for Europe, the Middle East and Africa, UBS said yesterday in a statement. Gruebel, 67, handed in his resignation as the Zurich-based bank’s board of directors met in Singapore.
“That it was possible for one of our traders in London to inflict a multibillion loss on our bank through unauthorized trading shocked me,” Gruebel said in a memo to staff yesterday. “This incident has worldwide repercussions, including political ones. I did not take the step of resigning lightly. I am convinced that it is in the best interests of UBS to approach the future with a new leader at the top.”
Gruebel, who joined UBS after about 37 years at rival Credit Suisse Group AG, is the only person to have served as CEO of both of the biggest Swiss banks. Brought out of retirement to rebuild UBS after record losses, he returned the bank to profit about six months after arriving, resolved a dispute with the U.S. over banking secrecy that threatened the firm’s existence and stemmed nine straight quarters of client defections at the private bank. He also led an expansion of the investment bank.
Chairman Kaspar Villiger, on a conference call with reporters, said the board tried unsuccessfully to persuade Gruebel to remain until the annual shareholders meeting next year. He will be paid for a six-month notice period and have no further role at the bank. Carsten Kengeter, the head of UBS’s investment bank, did an “excellent job” in covering positions after the crisis and there is no doubt about his future, Villiger said.
UBS plans to shrink the division following the loss. Gruebel and Kengeter, 44, tried for the last two years to rebuild the unit into a top-tier investment bank, hiring more than 1,700 people and bringing in new business heads to replace those that left or were fired. They also increased risk-taking. Still, market turmoil and rising capital requirements had led them to begin reversing the buildup even before the trading loss. About 45 percent of 3,500 job cuts announced last month were slated for the investment bank.
“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,” Villiger said yesterday. “The investment bank will continue to strengthen its alignment with UBS’s wealth management businesses.”
UBS will probably scale back credit businesses that haven’t been very profitable and that will be affected most by the higher capital requirements under Basel III, said Cormac Leech, an analyst at Canaccord Genuity Ltd. in London who has a “hold” rating on UBS stock. The equities business, by contrast, “has a relatively high return so you’d expect them not to close that down,” Leech said.
UBS will announce further changes to the investment back in a presentation to investors scheduled for Nov. 17, Ermotti said on the call with reporters.
Gruebel an ‘Obstruction’
“They’ve got to change the aspirations of the investment bank and they’ve got to shrink it,” said Peter Thorne, a London-based analyst at Helvea SA. “I presume Gruebel was a bit of an obstruction to that because he felt the world was going back to the good old days and UBS was going to be a powerful investment bank.”
UBS said it may be unprofitable in the third quarter after the unauthorized trading. The loss, less than two months after Gruebel said the firm had “one of the best” risk-management units in the industry, raised questions about the bank’s controls.
It resulted from trading in Standard & Poor’s 500, DAX and EuroStoxx index futures over the past three months, UBS said on Sept. 18. While the positions were taken within the “normal business flow of a large global equity trading house,” the size of the risk was hidden by phony trades, UBS said at the time.
Kweku Adoboli, 31, the UBS trader charged with fraud and false accounting that may have resulted in the loss, remained in custody after a hearing in London on Sept. 22. He has yet to enter a plea.
The bank’s shares have declined by 7.4 percent in Swiss trading since the trading loss was announced, and 34 percent this year. That compares with a 37 percent tumble in the Bloomberg Europe Banks and Financial Services Index, which tracks 46 companies.
Gruebel’s decision to leave throws into relief the lack of a succession plan at UBS, analysts said. Chairman Villiger, 70, is scheduled to step down in 2013 and be replaced by former Bundesbank President Axel Weber, 54, who lacks hands-on experience running a commercial bank. The trading loss also reduces the chance Kengeter will ascend to the top job.
The departure of Gruebel may prove a blow to UBS and suggests a worrying level of disorder, especially as Chief Financial Officer Tom Naratil took up his post only three months ago, said Chris Wheeler, an analyst at Mediobanca Securities SpA in London.
“The board has made a terrible blunder” in not persuading him to stay, said Wheeler, who has an “outperform” rating on the stock. “That would have allowed some continuity with Axel Weber coming in. This is a bank now in disarray. It’s got a brand new CFO and now they’ve let the CEO walk away.”
Ermotti, a 51-year-old Swiss national who joined UBS in April after working at Merrill Lynch & Co. and UniCredit SpA, will be interim CEO while the board seeks a permanent successor to Gruebel, the bank said. In his 18 years at Merrill Lynch, Ermotti oversaw businesses including the global equities division before leaving in 2003 to join UniCredit, Italy’s biggest bank.
As UniCredit’s investment banking chief, Ermotti also supervised global transaction and private banking. Ermotti had aimed to compete with the world’s top securities firms as mergers soared and business flourished before the subprime crisis spread and credit became scarce. He later scaled back the plan to focus on corporate and investment banking business in UniCredit’s home markets.
Ermotti, who became deputy CEO at UniCredit in July 2007, will be a candidate for the permanent top job at UBS, Helvea’s Thorne said.