UBS hopes small is less risky

Oswald Gruebel Oswald Gruebel has resigned as chief executive of UBS

The exit of Oswald Gruebel as chief executive of UBS became inevitable when the group uncovered a £1.5bn loss on alleged unauthorised trading some 10 days ago.

For a group whose culture is supposed to be of prudence and conservatism, and which has let itself down so badly so many times in the past three years, the embarrassment demanded that responsibility was taken at the very top.

But perhaps more important than the temporary appointment as interim boss of Sergio Ermotti (who is currently head of the bank's European, Middle Eastern and African operations), pending the choice of a permanent replacement, is what the group had to say about the future of its investment bank - which is where the alleged unauthorised trading was conducted by Kweku Adoboli.

In spite of pressure in UBS's home country of Switzerland for the investment bank to be hived off, the board of UBS has decided that the investment bank would be retained and that UBS would remain a universal bank.

But that does not mean UBS's investment bankers can breathe a sigh of relief - the board authorised a radical reconstruction of the investment bank.

Gloomy forecast

UBS's investment bank will be shrunk significantly - it will take less risk, have a smaller balance sheet and use less capital. It will also concentrate exclusively on providing services to clients, rather than trading for its own account.

This is significant for London and Wall Street, where UBS has big operations.

In London, for example, UBS is where the ghosts of the famous stockbrokers Rowe & Pitman and Phillips & Drew, and the merchant bank Warburgs still linger (these businesses were acquired by UBS in the City's massive upheavals of the past 25 years). If the spirit of these old London firms hadn't quite been extinguished, it may well be now.

UBS's investment bankers are gloomy. They believe that the shrinkage of the bank will see them retreat from the premier league of investment banking. Some tell me they will jump ship before being pushed.

And it could get worse, they say. The investment bankers are waiting with some anxiety to hear what Mr Adoboli advances in court in defence of his huge loss-making bets on stock-market indices.

Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 1.

    Look on my works, ye Mighty, and despair!

    Gruebel's been sacked because some kid pressed the wrong buttons. But what about all the other boneheaded keyboard clicking that has gone on since 2007?

    Look, can't we just chop their fingers off - it would save us all a fortune!

  • rate this

    Comment number 2.

    "UBS's investment bank will be shrunk significantly - it will take less risk, have a smaller balance sheet and use less capital"

    In my book you either do it right, or you get eliminated...

  • rate this

    Comment number 3.

    I'm still waiting for a convincing argument as to why is it good for a retail bank to have an investment banking arm.
    As i see it, not even shareholders gain from it, since risk increases a lot and most of the profit ends up as bonuses (example: RBS 2010 investment banker bonuses £1.2billion, profit £1.0 billion)

    It's a bit like a Hospital converting one of it's wings into a Fireworks factory.

  • rate this

    Comment number 4.

    Jump before he is pushed no doubt and retain his multi million franc pension, just like Goodwin.

    Adoboli is not just a rogue trader, he is sytematic of the greed culture that is positively encouraged and nurtured by senior managers in banking. When the trader gets it right, everyone gets a huge bonus, get it wrong and the trader is rogue and made a scapegoat.

  • rate this

    Comment number 5.

    What a pity some of the other banks' chief executives didn't bow out gracefully after the questionable trading activities many of our banks indulged in recently, and for which we are all at present paying the cost.


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