Clock Ticking At UBS For Gruebel

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Nov 22, 2009 2:06 pm

ZURICH (Reuters) - Turnaround wizard Oswald Gruebel must prove to investors he has not lost his magic by clearly mapping out UBS’s road to recovery at a key investor event.

UBS is expected to unveil business targets, and investor expectations for the no-nonsense Gruebel to finally turn around the battered Swiss banking flagship are high after his previous successful effort at arch-rival Credit Suisse.

But nine months into the job, UBS’s bottom line is still in the red and the bank has yet to restore its reputation after a tax fraud investigation in the United States and making big writedowns on risky bets.

“It’s not easy to turn this bank around and there are still challenges ahead. Gruebel’s turnaround of Credit Suisse started in 2002 and it did not come in a couple of months. Why should it come any quicker at UBS?,” said Dirk Hoffmann-Becking, analyst at Stanford C. Bernstein.

Higher-than expected accounting charges pushed UBS to its fourth consecutive quarterly loss in the third quarter. The bank said last week it did not expect to win back client money soon.

Its problems are borne out by a lacklustre share performance – up 17 percent this year while the wider European sector has gained nearly 60 percent and Credit Suisse’s stock has doubled in value.

Although UBS’s investment bank – which caused much of its problems in the subprime crisis – was profitable at an underlying level, Chief Financial Officer John Cryan acknowledged that all investors wanted to see was a positive headline number.

“I believe UBS will try to present some good news on its investment bank and wealth management business,” said Vanni Vecchini, an equity sales specialist at global independent agency broker Louis Capital Markets.

"Most investors are sceptical on UBS’s turnaround. What they really want to see is a first sign of a slowdown of net new money outflows."


The husky-voiced Gruebel, born in Germany in 1943, earned a legendary reputation in Switzerland after restoring confidence and profitability at the then weakened Credit Suisse during his 2002-2007 tenure.

But the banking veteran, a former trader with no university education, took on his toughest challenge yet when he agreed to come out of retirement to steer UBS through a subprime and tax storm.

“UBS has made all the mistakes they could. Obviously Gruebel is trying to turn it around. The guy is very good, but he has inherited a lot of problems,” said Daniel Zachmann, analyst at independent asset and wealth manager Bedrock Group.

Even though Gruebel has put the bitter U.S. tax litigation behind him with a settlement in August that included a pledge to reveal the names of around 4,450 wealthy U.S. clients, UBS is still losing client money at its core wealth management franchise.

“Although we believe in UBS’s longer-term value proposition, …the path to recovery is unlikely to be a straight line,” said Citi bank analyst Kinner Lakhani. "The investor day clearly offers management the opportunity to better define the roadmap."

The Swiss government will hold a press conference on Tuesday outlining the criteria for transfer of UBS client data to U.S. tax authorities.

UBS is also still facing litigation after it helped set up, at the request of clients, two Luxembourg-based funds that invested assets with convicted U.S. fraudster Bernard Madoff. The funds faced total losses of $1.7 billion (1 billion pounds) at end September, UBS said in its financial report.

The investor day opening session, to be led by Gruebel’s right-hand man and former Credit Suisse colleague Ulrich Koerner, will tackle the issue of "Group Strategy and Transformation"

More detailed sessions on the investment bank and wealth management business will follow.

Investors expecting fireworks at next week’s presentation may be disappointed as some analysts predict Gruebel will stick to the cautious tome he has adopted since he came into office.

“There are a lot of investors that are expecting some sort of Big Bang at the investor day, big earnings targets they can look forward to,” said Stefan Stalmann, analyst at UniCredit. “But I think Gruebel is quite happy to run strategically with what he has. I expect no revolution.”

(Editing by David Cowell)