The resignation of UBS AG Chief Executive Oswald Grübel throws Switzerland's largest bank into renewed turmoil, leaving it struggling with the twin problems of revamping a troubled investment bank and finding a permanent CEO.
In a fresh blow to the beleaguered bank, Grübel resigned Saturday morning in the wake of huge trading losses allegedly by a London-based trader at UBS's investment-banking unit. The bank's board appointed Sergio Ermotti, head of the European business, as interim CEO effective immediately. A search is under way for a permanent chief executive, with the board considering both internal and external candidates, said UBS Chairman Kaspar Villiger in a conference call Saturday.
The surprise resignation of Grübel deprives UBS of a veteran banker who had gone a long way in restoring the fortunes of a bank that was among the hardest hit by the financial crisis. Since his arrival at UBS in February 2009, he pulled the bank back from 19.7 billion Swiss francs ($21.8 billion) in 2008 losses. He also resolved a bruising tax-evasion scandal involving allegations by U.S. authorities that UBS bankers helped Americans evade taxes; UBS admitted wrongdoing as part of a sweeping settlement. And he stemmed the outflow of wealthy investors at UBS's huge private bank. But Grübel had yet to completely stabilize a bank that has lurched from one crisis to another since 2007.
Now, Ermotti, who is UBS's third chief executive in four years and joined the bank only five months ago, has been handed the task of restructuring an investment bank that, before the trading scandal, was already struggling with new regulations and tough new competition. He must also restore morale among employees and prevent a fresh exodus of wealthy investors from the private bank. He will do so even as the board considers whether to confirm him as chief executive or name someone else.
Grübel's resignation "is certainly not good for the continuity of the bank, and that's what is needed right now," said Tobias Straumann, a professor at the University of Zurich who served as an outside expert to analyze the compliance shortcomings at the bank that gave rise to $50 billion in securities write-downs in 2008 and 2009. "It's potentially destabilizing."
UBS announced earlier this month that a London-based trader had racked up $2.3 billion in losses due to unauthorized trades. People familiar with the situation say 31-year-old Kweku Adoboli, who was arrested earlier this month in London and charged with fraud and false accounting, is that trader. Adoboli hasn't yet entered a plea.
Grübel said a week earlier that he had no intention of stepping down due to the trading scandal. But by the time he arrived in Singapore on Tuesday for several days of meetings among top executives and the bank's board, he began to reconsider, said people familiar with his thinking.
On Wednesday, he told Villiger of his intention to resign. Villiger tried to dissuade him, proposing that he remain until next spring to deal with the fallout of the trading scandal and allow the board more time to find a successor. Grübel had originally planned to step aside in 2012 or 2013, and the board only began the formal process of finding a CEO successor two weeks ago, said Villiger in the conference call Saturday.
But Grübel feared that he wouldn't have a free hand in restructuring the investment bank if a departure date was already determined, according to a person familiar with his thinking.
Moreover, his relationship with the board had deteriorated somewhat in recent months, in part due to his blunt criticisms of tough new Swiss banking regulations, the person said.
"He decided it would be easier for a new person to move forward with everything," said the person. At 11 a.m. Saturday in Zurich, the board accepted Grübel's resignation during a conference call.
"That it was possible for one of our traders in London to inflict a multibillion loss on our bank through unauthorized trading shocked me," Grübel said in a memo to staff Saturday. "This incident has world-wide repercussions, including political ones.... I am convinced that it is in the best interest of UBS to approach the future with a new leader at the top." Grübel couldn't be reached for further comment on Sunday.
On Saturday, Ermotti said the bank's internal investigation will be completed within two weeks. Villiger said Grübel's resignation had nothing to do with preliminary findings from the investigation.
Grübel's departure highlights once again a succession problem that has raised concern among Swiss regulators who are anxious to see UBS return to full health.
In July, UBS announced that Axel Weber, former president of Germany's Bundesbank, will replace Villiger, 70, as chairman in 2013. That was to have given UBS's board ample time to look for a CEO successor.
Several years of wholesale change at UBS's top management ranks has left it without a deep bench of internal candidates. The bank has had three investment-banking chiefs since 2007. Moreover, just this year, it appointed a new finance chief and a new chief risk officer.
Ermotti and investment-banking head Carsten Kengeter were considered the top internal candidates for the CEO job. Villiger said Saturday Ermotti is a "strong candidate" for the permanent job, but he declined to comment as to whether Kengeter was still in the running.
Analysts said they doubt that Kengeter is now a likely candidate, given that Ermotti has signaled plans to considerably scale down the investment bank. Kengeter had a key role in managing the aftermath of the huge securities write downs and brought the unit back to profitability after it posted 34.3 billion francs in losses in 2008. Kengeter declined to comment.
But over the summer Grübel began re-thinking the investment bank's ambitions. Ermotti is now examining where UBS can still be competitive—such as in equities and foreign exchange—but analysts expect large cuts in areas such as fixed-income, where Kengeter had hired hundreds of bankers.
A large focus will be on products and services that can be sold to the private bank's wealthiest clients; for instance, ultra-wealthy clients, particularly in the emerging markets, look for access to initial public offerings as well as more sophisticated investment products.
"We don't have ambitions to be the top five in scale" overall but will choose the areas where the bank can credibly compete, said Ermotti, a 51-year-old Swiss national. "We need to create sustainability and not just profitability."
Analysts point to relatively few possible outside candidates, with Bill Winters, former co-chief executive of J.P. Morgan Chase & Co.'s investment bank, who recently started a new asset-management company, among the few touted in recent days.
An outside candidate raises the problem of a new CEO joining the bank just as Weber also joins UBS as chairman, raising a double succession problem. Villiger indicated Saturday that a new CEO could come more quickly—possibly as soon as spring 2012—if he came from inside the bank. Luring a prominent outsider away from another bank could drag the process out much longer, said the chairman. As a result, some expect Ermotti to be confirmed in the spring.Sara Schaefer Muñoz and David Enrich contributed to this article.