UBS: After Wuffli, What?

The Swiss financial giant suddenly ousted its well-respected CEO, which could cause unease. But he's being replaced by powerful talent

by Stanley Reed

Zurich-based financial giant UBS (UBS) has a disconcerting habit of dispensing with senior managers without warning. Luqman Arnold was shoved out as chief executive officer in December, 2001, and replaced by Peter Wuffli in circumstances shrouded with mystery. Now, Wuffli has lost out in a boardroom coup.

In the early hours of July 6, UBS surprised just about everyone by announcing that the group chief executive would "relinquish all of his functions at UBS and leave the bank." Wuffli will be replaced by Marcel Rohner, the deputy CEO and chief of UBS's most valuable business, private banking (or Global Wealth Management, as it is officially known).

The clumsily handled shift may indicate that the bank is under strain as it tries to maintain its position at the top tables of world financial institutions with the likes of Goldman Sachs (GS) and Morgan Stanley (MS). While UBS has been one of the great success stories in finance in recent years, it is coping with issues such as how to prevent the poaching of top traders by hedge funds.

Creating unease

What's more, as a bank that earns its biggest riches from wealth management, UBS is struggling over whether to hazard unsettling its clients by taking the sort of trading risks that have been so successful for Goldman. UBS, like other foreign banks that have made U.S. acquisitions, also is challenged by managing a large U.S. business that includes the former Paine Webber brokerage firm.

It is not clear, though, whether ousting Wuffli is the answer to any of these questions. The former McKinsey consultant is well-respected inside and outside UBS for the job he has done in forging a collection of acquired institutions into a coherent force (see BusinessWeek.com, 07/25/05, "The Master of Zurich"). His abrupt departure is bound to create unease inside the bank and raise questions about the bank's future direction.

Assuming that there are no time bombs lurking on UBS's books, what could ease any damage is that Rohner and Raoul Weill, 47, who will succeed Rohner as head of Global Wealth Management and Business Banking, are both rated savvy, relatively youthful financiers in the Wuffli mold. "Strategically, there will be little change," said analysts from Keefe, Bruyette, & Woods, an investment bank specializing in financial institutions, in a research note.

Between the Cracks

UBS explains Wuffli's departure as the result of a boardroom disagreement over succession. Marcel Ospel, the chairman and longtime architect of UBS's expansion, wanted to step down and suggested that Wuffli move up to chairman. But the board "decided not to accept his proposal," UBS says. The board "does not view the succession of the CEO to the position of chairman as automatic."

Instead, the board decided to promote Rohner, a 42-year-old rising star, but asked Ospel to stay on for another three-year term as chairman. Wuffli, as someone put it, "fell between the table and the bench."

What seems to have happened is that some recent stumbles dulled Wuffli's luster. Chief among them was his decision, announced on May 3, to fold Dillon Read Capital Management (DRCM), UBS's U.S. hedge fund unit, back into the bank after losses in the subprime mortgage market (see BusinessWeek.com, 05/03/07, "UBS: A Hedge-Fund Stumble").