ZURICH—In a widely expected move, UBS AG on Tuesday appointed Sergio Ermotti as chief executive, just days ahead of a key meeting where it plans to tell investors it will shrink its investment bank and focus more on managing assets for wealthy clients.
Ermotti, a Swiss national, was named interim-CEO when Oswald Grübel stepped down abruptly in late September, after the Swiss bank reported it lost more than $2 billion in an alleged rogue-trading incident. He had joined UBS in April, at Grübel's invitation, from Italian bank UniCredit SpA.
Ermotti emerged as an early front-runner to get the job on a permanent basis even though the bank said it would consider internal and external applicants and hired head-hunting firm Egon Zehnder International to help with the search.
UBS's board has been criticized for its decision of not immediately naming a permanent CEO after Grübel stepped down. This left a leadership vacuum at the top, particularly since Chairman Kaspar Villiger planned handing over his role to former Bundesbank chief Axel Weber in early 2013. This leadership change has also been brought forward now, with the board proposing to appoint Weber as chairman at the bank's general meeting in May 2012.
"In our view today's announcement is positive as it provides UBS with more certainty about its leadership and hence brings in stability," said Teresa Nielsen, analyst at private bank Vontobel in Zurich, who has buy rating on the stock.
In recent weeks it became increasingly clear that UBS may give the CEO job to Ermotti on a permanent basis ahead of a day-long meeting with investors in New York Thursday. Ermotti gave a sneak preview for the investors day, saying that UBS's strategy "will be centered on our leading wealth management business and our position as the strongest universal bank in Switzerland."
UBS will keep investment-bank activities that will help it grow its wealth management business, but the unit "will be focused, less complex and less capital-intensive," Ermotti said. The plans are a U-turn for UBS, Switzerland's largest bank, which spent billions of dollars on acquisitions and investments to build a global investment bank capable of competing with Wall Street's largest firms.
The Zurich-based bank is expected to announce more job cuts, most of them in investment banking, as it realigns its strategy to fit a harsher regulatory environment and adapt to troubled financial markets. The job cuts would come on top of 3,500 announced earlier.
Among other steps, UBS may say it will reduce risk-weighted assets by around 100 billion Swiss francs ($111.16 billion), probably through a dramatic shrinking of its fixed-income business, which uses up a disproportionate share of capital.
UBS rival Credit Suisse Group last week embarked on a similar change in strategy, announcing new job cuts that raise the total of positions to be eliminated to 3,500, and also said it will shrink its fixed-income business to free up capital.
UBS and Credit Suisse are on the Financial Stability Board's list of 29 systemically relevant banks worldwide, or banks that are deemed too big to fail, and which must therefore set more capital aside than smaller institutions.
This story first appeared on WSJ.com.