Singapore: UBS CEO Oswald Gruebel is fighting to keep the Swiss bank’s investment arm -- the scene of a $2.3 billion rogue trading scandal -- despite pressure to scale it back or split it off, as he seeks to save his own position.
With his job on the line after the scandal, Gruebel is meeting the board of directors in Singapore and will urge them to accept his plan to maintain the investment bank as part of the group’s business alongside wealth management, sources told Reuters on Thursday.
The 67-year-old German, a former bond trader himself, has stuck by this strategy in meetings with executives throughout the week, sources said.
A source close to the bank said Gruebel had been delivering “a consistent message” that the bank wants to have “an integrated banking model”.
“One incident doesn’t mean UBS will rush to sell the investment bank,” said a second source who attended a meeting between Gruebel and senior Asian executives earlier in the week.
But the market expects to see at least one senior head roll, analysts said.
“The best signal ... would probably be for UBS to let go of Carsten Kengeter, who as CEO of investment banking is ultimately responsible for the losses,” said Christian Stark, analyst at Cheuvreux.
“It would also send a signal that the board realises having made mistakes in aggressively rebuilding investment bank and (would) make any commitments to downsize investment bank appear more credible.”
UBS trader Kweku Adoboli, who was last week charged with fraud and false accounting related to the trading losses, is due to appear in court in London on Thursday for a bail hearing.
The charges he faces date back to 2008, prompting criticism of the bank’s control mechanisms and integrated business model.
Gruebel Says Supported By Board
Gruebel told Reuters in Singapore on Wednesday that he had the support of the bank’s board ahead of its first meeting since announcing the loss.
Gruebel was brought out of retirement in 2009 to turn UBS around after huge losses on subprime assets forced the Swiss government to bail out the bank, which was then hit by a scandal relating to helping US clients to evade taxes.
The board of directors meets on Thursday and Friday, one of four regular meetings per year, coinciding with the Singapore Formula One motor racing Grand Prix, of which UBS is a major sponsor.
Singapore sovereign wealth fund GIC, which is UBS’s biggest shareholder, with a 6.4% stake, publicly expressed disappointment and concern at the “lapses”, adding pressure on Gruebel to restore confidence.
A statement of support from GIC, which has lost more than half of its investment in UBS since it bailed out the Swiss wealth manager in 2007, made no mention of the investment banking business.
“GIC’s view of UBS’ fundamental strength as a well-capitalised bank with a strong private wealth management franchise remains unchanged,” it said.
The bank is widely expected to speed up the overhaul of its investment bank that had been planned for announcement at a 17 November investor day. Big shareholders have signalled they could wait until then while the bank completed an internal investigation, another source at the bank said.
“The view from the (executive) board is very clear. Investment banking is a very important and critical part to the overall strategy together with the wealth management,” said a third source.
“This one incident is annoying, it is very annoying, but that’s not going to change the overall strategy.”
Shares in UBS were down 3.2% at 9.9 francs by 03:17 pm, outperforming the European banks sector index which was down 4.9%.
Investment Banking Critical
UBS’s trading loss could have wider repercussions for the global banking industry, which is already struggling with Europe’s debt crisis and fears that the US economy could slip back into recession.
“We are at unprecedented times right now in terms of events especially in Europe, especially with regard to the revenue slowdown in the United States,” CLSA analyst Mike Mayo told Reuters Insider TV.
“And you take that combination with risk failures, and it creates a very flammable environment where it just adds to the volatility.”
Gruebel was likely to cite progress made under his leadership in cutting risk-weighted assets by a third since the end of 2008, in boosting the bank’s capital ratio and cutting headcount by 16%.
Client inflows have turned positive, but analysts warned the latest rogue trading incident raises the risk of reversing that trend.
An executive at UBS shareholder Threadneedle Investments said on Thursday there was no need for the bank’s chairman or CEO to resign over the rogue trader incident, but said the bank should change its investment banking business model.
“It’s a very high quality business with a terrific reputation, but it’s been tarnished by inability to manage the risks,” said Leigh Harrison, Threadneedle’s global equities head.
“I think withdrawing from every part of the investment banking business probably does not make sense. It doesn’t have to be in every part of investment banking,” Harrison told Reuters on the sidelines of a business event in Taipei.
Gruebel had been expected to scale back proprietary trading and fixed income operations, but not ditch them completely.
Gruebel, who previously ran Credit Suisse, initially indicated he would only stay in the job for a couple of years to get the bank back on its feet but suggested recently that he could stick around at least until former Bundesbank boss Axel Weber takes over as chairman in 2013.
UBS has been grooming Sergio Ermotti, the former deputy chief executive of UniCredit, who joined the bank as Europe, Middle East and Africa chief in April, but until the scandal Gruebel had signalled that he was in no hurry to go.