No Time to Rest at UBS

Oswald J. Grübel gave a dazzling performance as head of Credit Suisse (CS) from 2004 to 2007, doubling the Swiss bank's profit and share price. Now, Grübel, 66, has come out of retirement for an even more challenging role. His encore performance: CEO of UBS, Switzerland's largest bank, which racked up $57.3 billion in losses during the credit crisis—more than any other European financial institution.

Since taking the job in February 2009, Grübel has garnered some good reviews. He has cut about 11,000 jobs worldwide, appointed five new managers to the executive board, started weekly calls with top risk officers, and raised $3.6 billion from investors. On Feb. 9, UBS reported its first quarterly profit in more than a year. It's expected to earn $5.14 billion in 2010, the first annual profit since 2006, according to a Bloomberg survey of 20 analysts.

The CEO has made no progress, however, on the bank's most pressing problem: withdrawals by wealthy clients, who have removed $214 billion over the past seven quarters. The outflow increased in the fourth quarter and will probably continue, analysts say, as uncertainty persists about the outcome of U.S. efforts to investigate alleged tax evasion by UBS clients. Several former UBS bankers have pleaded guilty or been indicted for helping wealthy Americans evade taxes, and the bank settled a Justice Dept. lawsuit by agreeing to cooperate and paying a $780 million fine.

Grübel, known as "Ossie," says he is counting on the return to profitability to help make UBS "a trusted bank" again. But he hasn't announced a detailed plan to stem the bleeding or reach his goal of eventually attracting $50 billion a year in new cash to the wealth management unit. Even hitting that lofty target wouldn't bring UBS back to the glory days before the credit crisis; wealth management pulled in about $113 billion in 2007 and $87 billion in 2006.

UBS's tax dispute with the U.S. will only complicate Grübel's task. In August the bank agreed to provide account data on as many as 4,450 American clients to settle an IRS summons. The Swiss administrative court muddied the picture last month by blocking the government from passing some of the data to U.S. authorities; judges ruled that the failure to file certain IRS tax forms, a key part of the UBS settlement, wasn't considered fraud in Switzerland. Both countries are working to resolve the dispute. UBS has said it is "fully supportive" of the efforts.

For now, analysts seem willing to give UBS's chief the benefit of the doubt. "Grübel has done what he said he would do," says Teresa Nielsen of asset manager Vontobel Holding. "All divisions are profitable, and now UBS needs to work on its image and reputation. It takes time."

Grübel, a war orphan who was raised by his grandparents in East Germany and never went to university, isn't afraid to shake things up. At Credit Suisse, where he spent 37 years, Grübel started cutting the bank's holdings of U.S. subprime mortgage bonds in 2006, while UBS was still buying them. Before becoming CEO of Credit Suisse, he completed a successful overhaul of private banking, adding more hedge funds and alternative investments to the group's lineup. And he showed good instincts. After meeting Bernard Madoff in 2000, he advised clients to steer clear of him.

Should Grübel work similar magic at UBS, investors could see a rich payday. The stock has fallen 9% since the end of 2008, while Credit Suisse shares climbed 60%. "UBS was a catastrophe," says Eric Bendahan, who manages $2.5 billion in the Oyster European Opportunities Fund. "But if things get back to normal, the potential is colossal."

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