Momentum is building behind Sergio Ermotti to be endorsed as permanent chief executive of UBS before a key investor briefing next week, several sources familiar with the Swiss bank's thinking said on Monday.
Ermotti, who has been the man to beat after he was named acting CEO late in September following a rogue trading scandal, still faces competition from inside and outside the bank.
However, with UBS likely to follow rivals in scaling back its securities unit due to dramatic falls in revenue and regulatory pressure, UBS is seen under pressure to make his appointment permanent, while bringing in a new CEO from outside UBS appears increasingly improbable.
Ermotti's leadership campaign is complicated by Axel Weber, who is set to join UBS's board in April but according to sources within the bank is already a very influential voice on the board. Weber is seen as a backer of an outsider as CEO, but with the clock ticking towards the November 17 investor day, a parallel search process he has initiated may run out of time.
UBS started looking for a new CEO to succeed 67-year-old Oswald Gruebel even before it learned that unauthorised trading in its London equities arm had caused some $2 billion in losses.
If we have a strategy day to tell investors the way forward, we can't then a month later appoint a new CEO which puts a question mark on the strategy, one of the people familiar with the bank's thinking said.
So we like the message of continuity.
Weber has seen Ermotti as a fallback option, but efforts to present a suitable candidate from outside UBS appear to have stalled, a source close to the former Bundesbank head said.
A person familiar with Weber's thinking said he was not aware of UBS being in the final stages of negotiating with an outsider, adding that the longer the process dragged on, the less likely it would be for a new external CEO to come on board.
Appointing Ermotti would fulfil a desire to erase investor doubts about the bank's medium-term strategy rather than being an enthusiastic endorsement of Ermotti as a candidate, two sources familiar with UBS' thinking said.
Ermotti himself has given UBS an ultimatum of sorts to make his status permanent by December, Swiss media reported recently.
UBS declined to comment on succession plans for Gruebel, who quit in September over the trading scandal. Gruebel had successfully returned UBS to profitability following a government-led bailout and stemmed outflows from wealthy clients.
Swiss regulators too are keen to see continuity rather than change at the top of Switzerland's largest bank, even more so following the rogue trading losses, the person said.
At its investor day, UBS is likely to present plans to put far more focus on its private banking arm by shrinking the investment bank, which accounts for a large share of the 3,500 jobs shed at UBS during the present crisis.
Outside candidates for the top UBS job include Deutsche Bank risk chief Hugo Baenziger, who has denied his interest by insisting he remains committed to his job at Deutsche.
A number of internal candidates including private bank head Juerg Zeltner and Gruebel's chief cost-cutter Ulrich Koerner are also jockeying for pole position, another source familiar with the situation said.
However, most internal UBS candidates are seen as lacking sufficiently broad experience in both the securities unit and the money-management arm to oversee management of both. Others are hobbled by their lack of credibility and profile in Switzerland, one of Ermotti's main strengths.
Credibility with financial regulators and the Swiss National Bank is seen as key because while both UBS and Credit Suisse have shrunk their balance sheets to meet new rules, they are being urged to do more. SNB president Philipp Hildebrand said on Sunday that the two still need to adapt their business models to a lower-risk philosophy and bolster capital and liquidity.
In turn, investors want to see UBS put more emphasis on its flagship private bank -- the third-largest in the world, with $1.56 trillion in assets -- and tame its investment bank.
The investment bank has very clearly been an underperformer for a number of years now, and UBS should reduce the size of the investment bank and ensure it develops synergies with the private bank, said Stephane Dutu, Geneva-based portfolio manager with Vernes & Associes.
Besides continuity, Ermotti has close ties within the Swiss banking establishment, having started at Merrill Lynch & Co. in 1987, the same year as UBS board member and Swiss fund-of-hedge fund pioneer Rainer-Marc Frey.
(Additional reporting by Philipp Halstrick and Andreas Kroener; Editing by Alexander Smith)