UBS's Mr. Fix-It
Just a couple of years ago, giant Swiss bank UBS was in turmoil. Soaring costs were killing profits, poor returns at UBS Asset Management were sending customers fleeing, and uncertainty over UBS's commitment to investment banking was sapping morale at UBS Warburg. As if that wasn't enough, senior managers were reeling from the collapse of secret merger talks with Merrill, Lynch & Co., a deal that would have propelled the bank to the top of the league tables. Then, just as UBS seemed to be getting a grip on its problems last year, it became obvious that its two top managers could no longer work together. In December, Chairman Marcel Ospel persuaded the board to fire Luqman Arnold, president of the group executive board. It seemed that UBS might be headed toward a crackup.
It turns out predictions of UBS's collapse were premature. The bank has a new president, Peter A. Wuffli, who has moved quickly to reassure investors and boost morale. Admirers praise his brilliant financial mind and deft organizational skills. And he's adept at motivating top managers, they say. It was Wuffli who shored up UBS's bleeding asset-management unit over the past two years. "He has shown his mettle in the other jobs he's had, and I'm sure he'll show it now," says Stephane Garelli, a finance professor at the IMD International Business School in Lausanne. Some investors and analysts wonder if the genial 44-year-old ex-economics journalist and McKinsey & Co. consultant has the force of personality and experience to keep the big bank on track, but Wuffli exudes confidence. "We're turning a universal but unfocused bank into a focused organization," he says. "We expect to continue gaining market share in the coming year."
One good sign: There's no hint of trouble between Wuffli and the strong-willed Ospel. The two have worked closely since Wuffli joined the group eight years ago and the executive board four years ago.
Ospel, 52, drove UBS's breakneck expansion over the past decade. UBS is now Switzerland's largest bank, the world's biggest money manager, and the parent of UBS Warburg, one of Europe's most ambitious investment banks. Total assets: $750 billion. But now, UBS needs to move from a tumultuous period of mergers and acquisitions to a steadier phase in which organic growth takes precedence. That's where Wuffli comes in. "He's a consolidator," says one senior colleague.
Wuffli made his mark running UBS Asset Management, which accounts for more than $400 billion of the nearly $1.5 trillion the group oversees. When Wuffli took over in September, 1999, the operation was rapidly losing funds--largely because Tony Dye, chief investment officer at Phillips & Drew, UBS's large British operation, declined to ride the tech and Internet bandwagon. Dye's insistence on a value-investing approach ultimately proved wise. But critics say he went overboard, keeping too much money in cash for too long and preaching caution years before the bull market had run out of steam. By 1999, UBS funds had plummeted to the bottom of the performance tables. In 2000, UBS's entire asset-management unit suffered a net outflow of $40 billion.
Wuffli came to the rescue. He acquired U.S. real-estate investment house Allegis Realty Investors LLC in December, 1999, to broaden the group's range of asset-management products. He merged Phillips & Drew and Brinson Partners, UBS Asset Management's U.S. wing, which led Dye to quit in February, 2000. (Just weeks later, the technology bubble burst, as Dye had long predicted.) Gary Brinson, Brinson's chief, retired at the same time, and Wuffli brought in a new group of executives. Returns improved, confidence was restored, and money started flowing back in--a net $21 billion last year.
Is Wuffli's sterling performance at UBS Asset Management a proxy for his future as CEO? Maybe. But managing all of UBS is different from running one part of it. Wuffli must continue to keep a lid on costs--investors say they want to see costs brought down by at least 2% more this year. At the same time, Wuffli must boost the UBS brand name and get senior managers to work together more effectively. And the question of whether the soft-spoken Wuffli is tough enough to work constructively with the indomitable Ospel won't go away. "Peter will be more amenable to Marcel" than was Arnold, says one insider. "That means less friction but more confusion, because Marcel wants to have a hands-on role, and people won't know who is really in charge."
Wuffli insists he will not be a pushover in the boardroom. "Stories of me being Marcel's yes man are plain wrong," he says. But he argues that an organization as large as UBS "can't be run by just a single guy" and that a "strong partnership" between chairman and president is essential.
UBS certainly suffered from management confusion in the past. Last September, Ospel apparently overstepped his authority when he agreed to back financially troubled Swissair to the tune of $420 million without informing the executive board. Arnold was furious. So was the board, which rapped Ospel across the knuckles. That added to Ospel's deteriorating relationship with Arnold, and, despite his own problems with the board, he persuaded his fellow directors to sack the Briton. "There were no conflicts over strategy--they just didn't get on," says Joseph J. Grano Jr., chairman and CEO of UBS/PaineWebber Inc. and a member of the executive board. "It was like a marriage that went wrong."
Whatever the doubts over how Wuffli will fare, he has gotten off to a solid start. Analysts were impressed by his spirited performance on Jan. 16 at a presentation on the group's wealth-management businesses, and on Feb. 14, when the results for 2001 were announced. They also have welcomed his commitment to maintaining the tight risk controls that kept UBS's exposure to problem borrowers such as Enron Corp. and Argentina to a minimum.
Under Wuffli, the group is moving quickly to beef up areas where it's weak. For instance, UBS is negotiating to buy Broadview International LLC, a U.S. investment bank that specializes in midsize technology mergers. "Although we will primarily grow organically, we will make some small acquisitions to fill holes," Wuffli says. And he is working to reinforce the UBS brand. For example, the Phillips & Drew and Brinson names will be consigned to history on Apr. 8 when the asset-management operation is rebranded as UBS Global Asset Management.
The moves promise to put even more distance between UBS and its European rivals, Credit Suisse Group and Deutsche Bank. Although net profit fell 36% last year, to $3 billion, UBS did considerably better than most analysts expected in a tough year. In contrast, Credit Suisse saw its profit drop 73%, while Deutsche's fell by more than half. UBS benefited from cost-cutting, improvements in the fund-management operation, and the PaineWebber acquisition starting to bear fruit. Even UBS Warburg did relatively well despite a severe downturn in European investment banking. Although fixed-income revenues plunged, the bank gained market share in equities and corporate finance. UBS turned in "a robust set of figures in a difficult environment," says Jeremy Sigee, a banking analyst at Schroder Salomon Smith Barney in London.
That's a solid foundation to build on. If Wuffli, who spends most of his time in Zurich, and Ospel, who is usually based in Basel, can avoid a falling out, they may prove to be a formidable team.
By David Fairlamb in Zurich