* UBS CEO seeks big cutbacks, meets opposition - sources
* UBS private bank head, Swiss chief said among opponents
* Second quarter earnings highlight need to act
* CEO Ermotti and chairman Weber seen having work cut out
By Katharina Bart
ZURICH, Oct 8 (Reuters) - Rifts among top UBS managers are hampering Chief Executive Sergio Ermotti's efforts to make big cutbacks, especially in investment banking, according to senior sources both inside and close to the bank.
While 52-year-old Ermotti has been scarcely visible outside the bank since taking over after Oswald Gruebel quit a year ago over a $2 billion trading scandal, sources in the bank say he is busy trying to marshal support for more forceful restructuring.
By contrast, while new UBS Chairman Axel Weber is a frequent public speaker on the eurozone, he is criticised within UBS for his absences at a time when senior figures are wrangling over tough strategic choices.
"Top management isn't unified at all, and that is now Weber and Ermotti's big challenge," one top UBS banker told Reuters.
Since his appointment, Ermotti removed risk head Maureen Miskovic but left investment banking head Carsten Kengeter in place while bringing in Andrea Orcel, a prominent merger and acquisitions specialist poached from Bank of America Merrill Lynch , to co-run the unit. Orcel is seen as a key Ermotti ally because the two, both native Italian speakers, were colleagues at Merrill Lynch.
A far more cooperative-style manager than predecessor Gruebel, the affable and well-dressed Ticino native Ermotti is struggling to unite top management behind him, ahead of what sources say could be far more dramatic restructuring moves than the 3,500 jobs the bank has until now said it will cut.
"Ermotti hasn't consolidated his hold on power and is by nature more collaborative than Gruebel was, which has inadvertently fostered infighting," another UBS top banker said.
Several sources say chief among Ermotti's critics are private banking head Juerg Zeltner, who jockeyed for the top job last September, and Switzerland Chief Executive Lukas Gaehwiler.
While Zeltner and Gaehwiler are not opposed to the need to make deeper cuts at UBS, infighting has emerged as the details are hammered out. Specifically, proposals for more centralisation, which would crimp the division heads' responsibility, are hotly contested.
"It is true that Sergio has ruffled some feathers, especially with people who fear their fiefdoms might be curtailed," the first UBS banker said.
Both Zeltner and Gaehwiler declined to comment to Reuters.
Some analysts expect UBS to disclose further restructuring steps as soon as with third-quarter earnings October 30, on top of planned cuts of 2 billion francs by end 2013, much like Deutsche Bank which is embarking on a crash diet amid a dearth of business.
"I believe UBS has been very busy trying to pull costs out of the business, especially investment banking, and wouldn't be surprised if we get a mini-strategy update around third-quarter results which gives more flesh to how much further they can go in cost-reduction", Nomura analyst Jon Peace said. He rates UBS stock at buy with a 17 franc target price.
Ermotti seemed to recently brace UBS employees and especially investment bankers for more blood-letting.
"I don't want to lull anybody into thinking better times are coming. Instead, I want to adjust our business model to the new reality," Ermotti told the Swiss Finanz und Wirtschaft newspaper mid-September, his most recent public comments.
"We want to earn a return on equity of 12 to 17 percent for our shareholders and be our clients' first choice. We will do everything necessary to reach that goal," Ermotti said. UBS's return on equity was a paltry 4.7 percent in the first half.
UBS's share price has edged more than 7 percent higher since Ermotti took over permanently in November, lagging the broader European sector , which has risen over 11 percent, though he has bolstered UBS's capital and overseen the bank's first dividend since 2008.
"Clearly, there still remains a lot for Weber and Ermotti to do," one of the UBS bankers said. Both men declined to comment.
A recent portrait by Swiss weekly Handelszeitung said Ermotti was a "part-time Chief Executive", distracted by dabbling in investments in his native Ticino including several luxury hotels and a local carrier, allegations which UBS denied.
"After becoming CEO of UBS Group, Sergio Ermotti abandoned all privately held mandates, as he has confirmed publicly on several occasions. His financial participations do not take up any of his time," UBS said in a statement.
This week, UBS's Chief Operating Officer Ulrich Koerner, an unsuccessful Ermotti challenger for the top job a year ago, was dubbed the "shadow CEO" of UBS by widely-read Swiss banking website Inside Paradeplatz, which referred to the COO's wide influence and Ermotti's lack of public profile in Switzerland.
UBS's second-quarter earnings highlighted the need for Ermotti to act. Net profit missed expectations by far, falling by more than half to 425 million Swiss francs amid a slide in investment banking income, including from UBS's traditionally strong equities unit. By contrast, 9.5 billion francs in fresh funds for UBS's flagship private banking arm for the wealthy underpinned that unit's health.
Ermotti said last year that his main aim was to restore UBS's past lustre following the trading scandal and near-collapse in 2008, arguing that the Swiss bank has the same potential for a rebirth as IBM or Apple, which both returned to their former glories following rocky patches.
But he has had limited success so far: while UBS might have bolstered its image in Switzerland by offering boat trip vouchers to celebrate its 150th year, the bank fell out of the top 100 worldwide brands this week after successive, sharp drops since 2008, in a ranking compiled by Interbrand.
Ermotti was careful to include the Swiss bank's employees in its 150th anniversary celebrations. UBS held a week-long series of parties for 1,000 staff last week in an edgy industrial venue in Oerlikon, old industrial lands in Zurich's northern suburbs which are undergoing a building boom.
Staff supped on Asian food, sausages and bread and Aelplermagronen, a frugal Swiss pasta and potato dish, making for an altogether lower-key affair than a February gala dinner for Switzerland's political and banking elite which featured caviar, truffles, wagyu beef, and langoustine prepared by renowned Michelin-starred Swiss chef Philippe Rochat.
UBS's reputation as an equities powerhouse was dented by the 349 million francs in losses linked to Facebook's botched U.S. market debut in May.
The ongoing trial of former UBS trader Kweku Adoboli over last year's scandal would seem to lend support to Ermotti's efforts to tame the investment bank because it has highlighted how the riskier business stands at odds with the bank's conservative, Swiss private banking roots he is playing up in its 150th anniversary year. Adoboli's defence team have argued that UBS turned a blind eye to rule-breaking as long as it made the bank money.
"I think Ermotti's managed to bring some calm back to UBS after it was hit by the trading turmoil, but the fact is the cost issue remains," said an external consultant to UBS who is not authorised to speak publicly.
(Editing by Emma Thomasson and Philippa Fletcher)