UBS CEO Oswald Gruebel is fighting to keep the Swiss bank's investment arm — the scene of a $2.3 billion (Dh8.45 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 said yesterday.
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," Christian Stark, analyst at Cheuvreux said.
"It would also send a signal that the board realises having made mistakes in aggressively rebuilding IB and [would] make any commitments to downsize IB appear more credible."
UBS trader Kweku Adoboli, who was last week charged with fraud and false accounting related to the trading losses, was due to appear in court in London yesterday 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 said in Singapore on Wednesday that he had the support of the bank's board ahead of its first meeting since announcing the loss.
Out of retirement
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 met Tuesday and yesterday, 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 per cent 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 November 17 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," a third source said.
"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 per cent at 9.9 francs by 9.47am GMT, outperforming the European banks sector index which was down 4.9 per cent.
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 said.
"And you take that combination with risk failures, and it creates a very flammable environment where it just adds to the volatility."