By Elena Logutenkova and Ben Holland
Feb. 27 (Bloomberg) -- Oswald Gruebel spotted the U.S. subprime debacle early and even saw Bernard Madoff coming. Now, he’s got to clean up after people who showed less foresight.
Those calls at Credit Suisse Group AG earned Gruebel the moniker “Saint Ossie” and made him as respected in Switzerland as Marcel Ospel, UBS AG’s former chairman, is despised.
Yesterday, the 65-year-old Gruebel ended two years of retirement for an even tougher task: saving the bank he competed against for 37 years. As the new head of UBS, he’ll have to fix a financial institution burdened by more than $50 billion in losses and writedowns, $106 billion of withdrawals from the wealth management business and a lawsuit by the U.S. government accusing UBS of helping customers evade taxes.
“It’s going to be a bit harder to turn around UBS than it was Credit Suisse,” says Patrick Lemmens, who helps manage about 10 billion euros ($12.7 billion) in assets at Robeco Group in Rotterdam. “The stock price increase today is a compliment to Gruebel of course, but it’s a bit premature.”
UBS, Switzerland’s largest bank, rose 16 percent to 11.74 francs in Swiss trading, the most in three months, as investors bet that Gruebel can restore profitability at a bank that posted a loss of 19.7 billion francs ($17 billion) last year, the biggest in Swiss history.
Zurich-based UBS spent more than a month persuading Gruebel to accept the chief executive officer job. In the end, it was the scale of the challenge that sealed the deal, he says.
“It took a lot of convincing, but they finally did,” Gruebel said in an interview yesterday. “I believe very strongly in our country as a financial center, and I also believe very strongly that we need two big banks. UBS is a great challenge.”
Rehired by Bank
It isn’t the first time Gruebel has been called out of retirement to revamp a Swiss bank. In 2002 when Credit Suisse’s insurance unit Winterthur was losing money on investments as stock markets tumbled, the bank brought back Gruebel just a year after a power struggle at the company forced him out. He returned the unit to profitability and then sold it.
“He’s not a consensus guy who’ll have endless meetings and then agree on some low-ball soft solution,” said Beat Wittmann, who knows Gruebel after spending more than a decade through 2007 on the board of Credit Suisse’s wealth manager Clariden Bank. Gruebel “ruffled some feathers, but he didn’t care, and at the end of the day only success counts. And he was successful.”
Gruebel ran Credit Suisse jointly with John Mack -- now head of Morgan Stanley -- starting in 2003. In the three years after he took over as sole CEO in 2004, he doubled the bank’s profit and share price.
Half a Century
Gruebel’s financial career spans almost half a century, and today he is widely known in Switzerland as Saint Ossie. A Google search turns up dozens of references to him with that nickname, including in the Wall Street Journal and Forbes magazine.
Born in the eastern part of Germany during World War II, he was orphaned before his first birthday. He crossed into West Germany with his grandmother on foot at the age of 10 to live with relatives. On the advice of a grandfather, he abandoned an ambition to study engineering and joined Deutsche Bank AG in 1961 as a 17-year-old trainee straight out of school.
He moved to Credit Suisse White Weld Ltd. as a Eurobond trader in 1970. By 1991 he had become Credit Suisse’s head of global trading. That background will help him free UBS of unprofitable investments, his former colleague Wittmann says.
“Traders at least know when to cut their losses and have no problem doing so,” he says. “If some banks, UBS too, had done that earlier, they would be in much better shape.”
Madoff Warning
Under Gruebel’s leadership, Credit Suisse started cutting its exposure to U.S. subprime mortgage bonds in 2006, when UBS was still buying them, according to disclosure from both companies. UBS eventually booked losses and writedowns of more than $50 billion in the current financial crisis, compared with $15.3 billion at Credit Suisse, data compiled by Bloomberg show.
After a meeting with Madoff in New York in June 2000, Gruebel advised Credit Suisse customers to pull funds out of Madoff’s firm because he couldn’t figure out how it made money, according to three people familiar with the situation.
Financial regulators in Luxembourg on Feb. 25 criticized UBS for a “grave breach” of oversight in its role as custodian bank for funds linked to Madoff. UBS rejected the charge, saying it wasn’t responsible for safekeeping of the funds.
Gruebel hasn’t got everything right. In an interview with Handelszeitung at the end of October, he predicted that markets were close to bottoming out and would rise at least 30 percent over the following six to nine months. Morgan Stanley World Index has fallen 20 percent since then, and Swiss Market Index has slumped 22 percent.
A Cost Cutter
Cutting expenditures was another Gruebel hallmark at Credit Suisse. Any bankers who wanted fresh flowers in the office should pay themselves, he told executives there in a 2002 memo. He once told senior managers to keep the cost of Christmas dinner down to 100 francs a head.
“Given the current business climate in many of our markets, further substantial cost reductions will be inevitable,” he told UBS employees in an e-mail yesterday. UBS has already announced plans to trim its workforce by 11,000 to 75,000 by the end of this year, and Gruebel said that further job cuts can’t be ruled out. He will be paid a base salary of 3 million francs, the bank said.
He also told UBS staff that the bank’s most important task is “to regain the trust of our clients and other stakeholders.”
Competing With Protege
“If there’s anyone who can do that, it’s Mr. Gruebel,” said David Herro, who owns about 0.6 percent of UBS’s outstanding shares in the $8 billion portfolio he runs at Harris Associates LP in Chicago. Gruebel stands out because of “his proactivity and intolerance for incompetence and poor results -- he definitely had distinct objectives, and you were held accountable.”
At UBS, Gruebel will be competing with his former protege Brady Dougan, another ex-trader who now runs Credit Suisse. There are signs it will be a friendly rivalry. Credit Suisse said yesterday it supports “the continued presence of two globally active banks in Switzerland” and is “pleased to see Oswald J. Gruebel appointed to this role.”
Still, for an executive to cross over from one of Switzerland’s two banking giants to the other is rare enough to look like a distress call, said Alois Pirker, a Boston-based senior analyst at Aite Group LLC, a financial research firm.
U.S. Problems
“Reaching out to Gruebel shows just how severe the problems have become at UBS,” said Pirker. “UBS has used up its leadership team. Gruebel knows the Swiss banking model best and so represents both a new start and an old hand.”
A key challenge facing Gruebel is in the U.S., where UBS sought to expand under Ospel and ran into legal trouble, according to analysts, including Sanford C. Bernstein’s Dirk Hoffmann-Becking.
Last week the U.S. sued UBS to force disclosure of as many as 52,000 customers who allegedly concealed wealth from tax authorities, a day after the bank agreed to pay $780 million and disclose the names of hundreds of account holders. Swiss media including Tages-Anzeiger described the deal as the beginning of the end for the country’s tradition of bank secrecy.
“The issue isn’t gone and we have to concentrate on that,” Gruebel said. “I’ll be involved very much in trying to solve that.”
Gruebel’s first retirement was announced by Credit Suisse in 2001 and lasted about a year. The second came in 2007, when he stepped down as Credit Suisse CEO after doubling profit in three years. Yesterday Gruebel, who enjoys fast cars when he’s not working and has driven Aston Martins, Porsches and a Mercedes-AMG with a hand-built engine, said he aims to achieve a similar improvement at UBS before he bows out for a third time.
“We want to bring the company back to profitability that’s acceptable for our stakeholders,” he said. “After we’ve done that I think I can go back to enjoying life.”
To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net; Ben Holland in Istanbul at bholland1@bloomberg.net.
Posts
No comments:
Post a Comment