UBS investors welcomed the Swiss bank's choice of caretaker chief executive, Sergio Ermotti, on Monday after Oswald Gruebel resigned in the wake of a $2.3 billion rogue trading scandal and cleared the way for a major overhaul of the investment bank.
Shares in UBS climbed steadily as fund managers and analysts digested news that the job of clearing up after the crisis had been handed to Ermotti, who joined UBS in April after being passed over for the top job at Italian bank UniCredit.
Ermotti is not the most risk averse -- he used to make some big trades (at Merrill Lynch.) But he does know how to manage risk, said a Geneva-based investment adviser who has worked with Ermotti in the past. He has the experience and he's motivated.
Shares in UBS, which staged a relief rally late last week on hopes the UBS board might decide on a big restructuring, were up 4.3 percent at 10.6 francs by 0927 GMT, recovering from initial losses and tracking the European sector banking index which also rose 4.3 percent.
Although the new CEO will no doubt take some time to develop a restructuring plan, we believe that hopes of a much more substantial downsizing of the investment bank, freeing up significant capital, will help support the shares in the short term, said Nomura analyst Jon Peace.
The 67-year-old Gruebel resigned on Saturday saying he was taking the blame for the scandal. But there was speculation he had clashed with the UBS board on strategy. Sources close to the negotiations said Gruebel had wanted to keep an integrated bank combining both wealth management and investment banking.
We suspect the board's desire to downsize the investment bank had more to do with it as Gruebel seemed reluctant to do that, said Helvea analyst Peter Thorne.
DZ Bank analyst Matthias Duerr said the bank needed a radical new strategy if it was to minimize a loss of confidence.
We believe a significant reduction of the size of the investment bank or its complete divestiture is likely to become increasingly necessary, he said.
There had been talk that UBS investment banking chief Carsten Kengeter would go rather than Gruebel, though UBS Chairman Kaspar Villiger said he and his team had done an excellent job to limit losses from the unauthorized trades.
Gruebel didn't resign, he was pushed. But maybe it would have been better if Kengeter and the head of risk had paid, a UBS wealth management insider said.
Gruebel also wanted ex-Bundesbank chief of Axel Weber to take over as chairman a year before the April 2013 date that has been announced, the Financial Times said.
Weber is already involved in the search for a new permanent CEO, Villiger said. He was in Singapore last week to consult with the board, sources close to Weber told Reuters.
The Ethos shareholder group wants the bank to call an extraordinary meeting to vote Weber onto the board immediately, the NZZ newspaper reported on Monday.
We don't share investor enthusiasm on the strategy shift, said Kepler Capital Markets analyst Dirk Becker, adding that reorganizing the investment bank could be difficult.
The trading loss might also dent client confidence and lead to renewed outflows in wealth management. We remain cautious.
The UBS board is looking at other candidates both inside and outside the bank to become the permanent new CEO but Villiger said at the weekend that Ermotti was a strong candidate.
The 51-year-old, who hails from Switzerland's Italian-speaking region of Ticino, has been regarded as a likely candidate for further promotion since he joined UBS in April as head of Europe, Middle East and Africa.
A former Merrill Lynch head of global equity markets, the interim CEO has experience both in investment banking and wealth management.
While at UniCredit, Ermotti is credited with limiting exposure to the U.S. subprime crisis and cleaning up German bank HVB, which had some 10 billion euros of bad loans when the Milan-listed bank bought it in 2005.
Alessandro Profumo, then UniCredit's head, named him deputy CEO in 2007, in which role Ermotti spearheaded the merger of UniCredit's investment and corporate banking units after the financial crisis, refocusing them on the bank's core businesses of Italy, Germany and central and eastern Europe.
It's a good thing for Ermotti and also for UBS, Profumo told Il Sole 24 Ore of his protege's new job. He knows the markets very well, he is very attentive to risk-management and he is very attached to the institutions that he works for.
At the top of Ermotti's to-do list for UBS is speeding up the overhaul of the investment bank, along with reviewing risk controls and overseeing an investigation into the huge trading loss, which he said should conclude in the next two weeks.
We expect Sergio Ermotti to accelerate the implementation of the investment bank's client-centric strategy, focusing on capital efficiency and a quick improvement of better risk systems, Vontobel analyst Teresa Nielsen said. We expect this to lead to improved risk adjusted returns for shareholders.
Villiger said at the weekend he expects the revamp to take two to three years to complete and that he intends to remain chairman until 2013, adding it would not be ideal for continuity for the chairman and CEO to leave at the same time.