UBS CEO Gruebel Resigns After $2.3 Billion Loss

UBS AG (UBSN), Switzerland's largest bank, named an interim chief executive officer after Oswald Gruebel resigned the post in the wake of a $2.3 billion loss from unauthorized trading.

Gruebel, who held the top job since February 2009, will be replaced on an interim basis by Sergio P. Ermotti, the bank's CEO for Europe, the Middle East and Africa, UBS said yesterday in a statement. Gruebel, 67, handed in his resignation as the Zurich-based bank's board of directors met in Singapore.

Gruebel, who joined UBS after about 37 years at rival Credit Suisse Group AG, is the only person to have served as CEO of both of the biggest Swiss banks. Brought out of retirement to rebuild UBS after record losses, he returned the bank to profit about six months after arriving, resolved a dispute with the U.S. over banking secrecy that threatened the firm's existence and stemmed nine straight quarters of client defections at the private bank. He also led an expansion of the investment bank.

'Excellent Job'
Chairman Kaspar Villiger, on a conference call with reporters, said the board tried unsuccessfully to persuade Gruebel to remain until the annual shareholders meeting next year. He will be paid for a six-month notice period and have no further role at the bank. Carsten Kengeter, the head of UBS's investment bank, did an "excellent job" in covering positions after the crisis and there is no doubt about his future, Villiger said.

UBS plans to shrink the division following the loss. Gruebel and Kengeter, 44, tried for the last two years to rebuild the unit into a top-tier investment bank, hiring more than 1,700 people and bringing in new business heads to replace those that left or were fired. They also increased risk-taking. Still, market turmoil and rising capital requirements had led them to begin reversing the buildup even before the trading loss. About 45 percent of 3,500 job cuts announced last month were slated for the investment bank.

'Less Complex'
"In the future, the investment bank will be less complex, carry less risk and use less capital to produce reliable returns and contribute more optimally to UBS's overall objectives," Villiger said yesterday. "The investment bank will continue to strengthen its alignment with UBS's wealth management businesses."

UBS will probably scale back credit businesses that haven't been very profitable and that will be affected most by the higher capital requirements under Basel III, said Cormac Leech, an analyst at Canaccord Genuity Ltd. in London who has a "hold" rating on UBS stock. The equities business, by contrast, "has a relatively high return so you'd expect them not to close that down," Leech said.

UBS will announce further changes to the investment back in a presentation to investors scheduled for Nov. 17, Ermotti said on the call with reporters.

Gruebel an 'Obstruction'
"They've got to change the aspirations of the investment bank and they've got to shrink it," said Peter Thorne, a London-based analyst at Helvea SA. "I presume Gruebel was a bit of an obstruction to that because he felt the world was going back to the good old days and UBS was going to be a powerful investment bank."

UBS said it may be unprofitable in the third quarter after the unauthorized trading. The loss, less than two months after Gruebel said the firm had "one of the best" risk-management units in the industry, raised questions about the bank's controls.

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