Basel, Switzerland: UBS will continue to bleed client money despite lower first-quarter withdrawals, CEO Oswald Gruebel told investors gathered to vote on bonuses and plans to exonerate management for the bank’s crisis.
Chief executive Gruebel, hired just over a year ago to turn around UBS, told a packed shareholder meeting that stopping clients pulling cash from its key wealth management division was a priority. But the bank had not yet succeeded in restoring trust, especially in Switzerland.
“We must, however, assume that we will have to accept further outflows before we can turn this trend around,” he told the annual general meeting of the bank, which has a new team of executives mainly brought in by Gruebel.
More than $50 billion of writedowns on credit losses drove UBS to its biggest annual loss in 2008 and threatened its survival, prompting state intervention.
The bank has also been the target of a high-profile US tax fraud investigation.
UBS paid 3 billion Swiss francs in cash bonuses in 2009 despite annual net losses of 2.7 billion francs ($2.6 billion). But Gruebel, who did not take a bonus, defended the hefty pay cheques as a way for the bank to attract and retain staff during a tough restructuring.
“To do so we need specialists and executives whose price is determined by the global market,” he said as investors prepare to give a non-binding vote on the bank’s 2009 bonuses. “This is a reality that we must acknowledge if we want UBS to compete globally, generate value for shareholders and remain an attractive employer.”
Chairman Kaspar Villiger, a former Swiss finance minister who joined the bank in March, strongly rejected criticism of UBS’s remuneration policy, saying curbing variable pay would take away the banks’ “chances of recovery and survival.”
Management exoneration in question
Most investors may in the end turn a blind eye on the issue in the light of progress made, some have said, but the vote on discharging management responsibilities for 2007, the year of risky bets on subprime products, looks particularly tight.
A rejection could theoretically pave the way for legal action against then chairman Marcel Ospel, who has become a hate-figure for the Swiss public, and chief executive at the time, Peter Wuffli, unless new evidence emerges.
“Primitive societies would sacrifice their elite to appease the gods, and that’s what some Swiss would like to do to Ospel and company today,” said Peter Thorne, an analyst with Helvea. “It’s a human instinct but let’s hope were beyond that now.”
The importance of such an historic rejection would, however, be largely symbolic, as the bank has already decided not to seek compensation from former executives, and individual shareholder action is costly.
Shares in UBS traded 1.3% higher at 18.29 by 1002 GMT, up from 18.11 francs shortly after the contents of Gruebel’s speech were made public. Credit Suisse stock was down 0.6% and the STOXX European banks index was 0.2% higher.
Top bankers have said Gruebel needs a few months of calm and an end to negative headlines to restore client confidence in the franchise fully and to stop an exodus of financial advisors.
That will depend on the fate of a deal struck with the United States last year to end a bitter tax investigation that has shaken customers’ trust and dealt a blow to Switzerland’s traditional bank secrecy. Parliamentary approval is needed.
Chairman Kaspar Villiger said in his speech that he was “very concerned” about the future of the US tax deal.
The right-wing SVP, Switzerland’s biggest party, has said it will vote against the deal, while the Social Democrats, whose vote could make or break the deal, signalled on Tuesday they might back it if the government introduces tax curbs on bankers’ bonuses.