UBS AG is weighing a shakeup at the top of its investment bank that would give a reduced role to Carsten Kengeter and more responsibilities to his co-head Andrea Orcel, three people with knowledge of the matter said.
The board was to meet in New York yesterday to consider a reorganization of the unit that will include cuts centered on the fixed-income operations that Kengeter has been responsible for since 2008, said the people, who asked not to be identified before the matter is made public. An announcement may come when UBS reports third-quarter earnings on Oct. 30, they said.
Chief Executive Officer Sergio Ermotti, 52, is overhauling the bank as Swiss regulators pressure UBS and Credit Suisse Group AG to boost capital and scale back their trading and investment-banking operations. UBS is already in the process of cutting risk-weighted assets at the investment bank by more than half from September 2011 levels, mostly in fixed income. Additional job cuts are also on the way, including about 400 staff, or 10 percent of the investment bank’s front-office employees in Europe, people familiar with the matter said last week. The bank announced plans last year to eliminate 1,600 positions at the unit.
“It’s good that they’re not sitting on their hands,” said Christopher Wheeler, a banking analyst at Mediobanca SpA in London. “You’ve got to keep responding to the changing market environment.”
UBS fell 1.2 percent to 12.20 Swiss francs as of 9:20 a.m. in Zurich today, trimming this year’s advance to 10 percent. The bank, which has a market value of 46.8 billion francs ($50 billion), has lagged the MSCI World Financials Index which rose 19 percent this year.
Kengeter, 45, has run the investment bank since April 2009, first as co-head with Alexander Wilmot-Sitwell, then alone, and since July as co-CEO with Orcel, 49, a former top dealmaker at Bank of America Corp.
Three senior executives who declined to speak publicly said they expect Kengeter to leave the bank before long. A person with knowledge of Kengeter’s thinking said he doesn’t plan to go. A UBS official declined to comment.
Ermotti told staff in a memo this month he’ll take “all actions necessary” to tackle the “paradigm shift” in banking and will continue “remodeling” UBS. He said in July that the market environment has completely changed since the bank announced reorganization plans for the securities unit in November.
Kengeter joined UBS from Goldman Sachs Group Inc. in December 2008, months after the bankruptcy of Lehman Brothers Holdings Inc. roiled markets and forced UBS to seek a bailout from the Swiss government to help it spin off toxic assets. He worked on cleaning up the rest of the illiquid assets from UBS’s balance sheet until former CEO Oswald Gruebel, 68, promoted him to co-run the entire investment bank in April 2009.
With Gruebel’s arrival that year, UBS also started rebuilding the securities unit and hiring bankers to make up for those who were fired or left during the subprime crisis. The effort was untimely as markets turned in 2010 when the debt crisis in Europe took hold. Since then the firm has been struggling to boost profitability as client activity remained sluggish and regulators boosted demands for capital.
UBS started a review to scale down the risk-weighted assets at the investment bank last year, and accelerated it after discovering a $2.3 billion loss from unauthorized trading in September 2011. Kweku Adoboli, a former employee, is currently on trial in London on charges of fraud and false accounting in relation to the loss. He has pleaded not guilty.
The trading incident led to Gruebel’s resignation and the departure of the co-heads of the equities unit in which Adoboli was working. Ermotti was appointed to replace Gruebel.
Pretax profit at the investment bank, which employed 16,432 globally at the end of June, slumped 55 percent in the first half from a year earlier.
“A reorganization of the business makes a lot of sense,” said Kian Abouhossein, an analyst at JPMorgan Chase & Co. in London. “There’s no other way to boost returns than to cut more costs, especially in fixed income.”
Under Kengeter, the investment bank returned to profitability after record losses from the subprime crisis. Before scaling back last year, he aimed to restore the bank’s trading businesses to their former standing. He told Swiss magazine Bilanz in an interview published in December 2010 that he wanted to bring UBS’s equities business to the No. 1 spot and fixed-income trading to a top-five place globally.
UBS’s share of revenue from trading stocks, bonds and advising clients on capital market transactions and mergers among the 10 biggest investment banks rose to 7.2 percent last year from 4.6 percent in 2009, when adjusted for gains or losses from banks’ own credit spreads that some firms report as revenue, data compiled by Bloomberg Industries show. Still, the share was lower than the 9.7 percent of 2006.
Orcel spent 20 years at Merrill Lynch before joining UBS in July and was among the biggest dealmakers when the U.S. firm was independent, leading the team that helped Royal Bank of Scotland Group Plc acquire ABN Amro Holding NV in 2008 in the biggest banking takeover.
He was named chairman of global banking and markets after Charlotte, North Carolina-based Bank of America acquired Merrill Lynch. The Italian banker, who got a reported $33.8 million in compensation for 2008, worked on UniCredit SpA’s 7.5 billion-euro rights offer this year before joining UBS in July.