New UBS chairman faces tough decisions

Axel Weber's appointment has been widely praised Keystone

UBS chairman elect Axel Weber faces the immediate challenges of replacing his chief executive and re-mapping strategy once he joins the bank as expected next year.

Subject to shareholder approval, Weber will start as understudy to current chairman Kaspar Villiger next year as vice-chairman before replacing the former Swiss finance minister in 2013.

The appointment of Weber – who until April was President of the German central bank (Deutsche Bundesbank) – has been widely praised, particularly as he was snatched from under the nose of Deutsche Bank, which was eyeing him up for a prominent leadership role.

“It is a very positive move given Weber’s political experience from his role at the Bundesbank,” Bank Sarasin analyst Rainer Skierka told swissinfo.ch. “His regulatory knowledge is also a good asset for UBS to have gained.”

Such detailed understanding of regulatory issues is seen as a major advantage for UBS as it plots a course to compete in the international markets despite having tougher capital requirements foisted on it by the Swiss authorities.

Germany’s loss

UBS’s gain is certainly seen as Germany’s loss as, until April, Weber was tipped as a candidate to succeed Jean-Claude Trichet as President of the European Central Bank.

Weber’s surprise resignation from Germany’s central bank, six months before his term was due to expire, caused political shockwaves earlier this year. It is also reported that Deutsche Bank’s inability to recruit Weber has caused friction between the executive and the board.

The Swiss media, by contrast, has been impressed by the speed at which UBS managed to persuade Weber to join its ranks. He is seen as a perfect replacement for Villiger, who joined UBS in 2009 with a brief to help resolve the bank’s tax evasion crisis in the United States.

Weber’s appointment, however, comes at a higher financial cost to the bank than Villiger, who restricted his base salary to SFr850,000 ($1 million) when he came to office.

Weber will receive a “golden hello” of SFr2 million in cash and 200,000 shares that could boost his package to some SFr5 million when he is able to sell them.

Grübel replacement

Villiger justified the package by telling the SonntagsZeitung newspaper that UBS had to “adapt to the global market.” Dominique Biedermann, head of the sustainable investment fund Ethos Foundation, rejected that argument, stating: “This announcement sends out the wrong political and economic signals.”

Weber will have to work hard for his money, according to observers. It is widely expected that UBS chief executive, Oswald Grübel – who was brought out of retirement to stabilise the bank in 2009 – will follow Villiger through the exit door in the next couple of years.

Grübel has been credited with bringing UBS back into the black after years of hardship, and finding the right replacement is a crucial task.

UBS has also criticised the Swiss financial regulator for imposing harsh capital requirements on the bank, as it has on Credit Suisse. Grübel has gone so far as to hint that some businesses, most likely investment banking, could be relocated to more favourable regulatory regimes.

The arrival of Weber, who has helped to shape Germany’s regulatory response to the financial crisis, would add an interesting new ingredient to how UBS deals with the “Swiss Finish” rules – due to be voted on by parliament this year.

Investing in future

Much speculation has also centred on UBS’s investment banking business for other reasons. Like many other rivals, investment banking has failed to spark in recent months at UBS as the risk adverse climate among clients continues.

“This is not a phenomena that is restricted to UBS,” Skierka said, “Investment banking is having a hard time in other countries, particularly in the face of increased capital requirements.”

“With a lack of client activity and the strong Swiss franc, investment banking is not a fun environment at the moment.”

In order to increase profitability, UBS needs to work out what services to retain and what to kick out, according to Skierka.

“It is clear that UBS, with its strong wealth management tradition, needs to offer clients merger and acquisition, share and bond trading services, for example,” he said.

“Trading high risk products [such as mortgage backed securities] is no longer profitable.”

Axel Weber

UBS’s next chairman in waiting has had a long career in economics and finance.

The 54-year-old was a member of the German Council of Economic Experts from 2002 to 2004, prior to becoming President of Germany’s central bank.

In his role at the Deutsche Bundesbank he served as a member of the governing council of the European Central Bank (ECB) and was on the board of directors at the Bank for International Settlements.

In addition, he held the concurrent positions of German governor of the International Monetary Fund and was a member of the Steering Committees of the European Systemic Risk Board and the Financial Stability Board.

Weber was expected to see out his eight year term as Bundesbank president until the end of October this year and was then widely tipped to as a candidate for the presidency of the ECB.

His surprise resignation from the Bundesbank in April led to overtures from Deutsche Bank to take over as chief executive.

But the German national opted for a new career at Switzerland’s UBS bank. Shareholders have been recommended to accept Weber as vice-chairman in May of next year before succeeding chairman Kaspar Villiger in 2013.