CEO Resignation Only Adds to Shockwaves at UBS

No time wasted. Only an hour after Sergio Ermotti was appointed interim CEO of UBS following Oswald Gruebel's decision to resign, the Swiss Italian banker, alongside Chairman Kaspar Villiger, addressed the media in a hastily arranged conference call.

CEO Oswald Gruebel of UBS
CEO Oswald Gruebel of UBS

UBS' board had taken the overnight plane from Singapore to Zurich, while putting on the finishing touches of how to communicate Gruebel's departure.

According to Chairman Kaspar Villiger, Gruebel's intention to leave was purely related to the size of the trading loss, as he took full responsibility for it as the top manager of the bank.

While Gruebel enjoyed the full backing of the board until the end and did not change his mind even after the chairman pleaded for him to stay on until the bank's AGM in 2012, UBS has little time to reflect on Gruebel's two-and-a-half-year tenure.

The bank's "To Do List" has just become a lot longer.

In addition to dealing with the inhospitable market environment which is depressing trading revenues, the bank must tackle the following points with the utmost urgency in order to win back shattered client confidence. It must complete its search for a permanent CEO, finish up its internal investigation into the trading loss, wait for two external investigations into the matter to be completed, review and strengthen risk management systems, and above all, overhaul its ailing investment bank.

Calling the trading loss "unacceptable and shocking," Villiger said the incident causes the bank to speed up the restructuring of its investment bank.

While the board will not deviate from the integrated banking model or consider a spinoff of the investment banking unit, the unit will never be the same as it once was. There will be less risk, less capital consumption — and most likely lower profits. That's what its future looks like.

And with that, UBS is not just responding to the trading loss, but also to the seismic shift in investment banking industry brought on by tougher global regulation.

Interim CEO Ermotti was mum on which areas of the investment bank will be scaled back. He said he could not rule out further jobs cuts, but he expected they would not be massive, and promised more details will be announced at the bank's investors' day on Nov. 17.

The former powerhouse of the bank will morph into a smaller and less capital-intensive version of itself. Although Ermotti expressed confidence that the unit would be able to continue to attract and keep talent, in what was one of his most candid comments, he said he didn't believe the investment banking industry will be as attractive of a workplace as it has been "because this is an industry that is shrinking, not growing."

He also admitted that it was impossible to aim for a spot among the top five investment banks in size and volume, calling these league tables "dangerous."

He stressed that UBS must now focus on being profitable in a sustainable manner and may only be a top five player in specific areas, like forex.

For 67-year-old Gruebel, today is the start of his second attempt at retirement. During his first try, he was brought back to turn around the struggling banking giant.

Gruebel is widely credited with reversing outflows in the Wealth Management unit and returning the group to profitability, ironically thanks to its roaring investment bank in early 2010. Little did he know back then that his fate was already sealed by one single trader who had already been racking up and concealing losses for more than a year.