Europe Faces Geithner, Soros Pressure to Defuse Debt Turmoil

By Simon Kennedy and Eric Martin - Sep 25, 2011 6:59 AM GMT+0700

European policy makers faced mounting pressure from foreign counterparts and investors to step up efforts to prevent their sovereign debt crisis from further roiling the world’s financial markets and economy.

U.S. Treasury Secretary Timothy F. Geithner set the tone for yesterday’s annual meeting of the International Monetary Fund in Washington by warning that failure to combat the Greek- led turmoil threatened “cascading default, bank runs and catastrophic risk.” Billionaire investor George Soros said “something needs to be done” to safeguard Europe’s banks because Greece may be unable to avoid default.

Such calls leave European policy makers under pressure to further boost the ammunition of their regional rescue fund even as parliaments focus on ratifying a July plan to broaden its powers. Markets reopen tomorrow after global stocks entered their first bear market in two years last week on concern Greek insolvency is inevitable and Europe can’t contain the damage.

“The sovereign debt crisis in the euro area needs to be resolved promptly to stabilize market confidence,” People’s Bank of China Governor Zhou Xiaochuan said at the IMF talks, which conclude today.

‘Firewall Against Contagion’

In his strongest public push yet for action, Geithner pressed governments to unite with the European Central Bank to “create a firewall against further contagion” and defuse the “most serious risk now confronting the world economy.”

He wants authorities to use leverage to increase the spending strength of the 440 billion-euro ($594 billion) European Financial Stability Facility. Bank of Canada Governor Mark Carney said 1 trillion euros should be deployed.

There are indications European governments are heeding the advice although they signaled a preference to first pass into law a revamp of the EFSF that will allow it to buy bonds and aid banks. European members of the Group of 20 agreed Sept. 22 to “maximize” the fund’s impact, while there are also discussions under way on speeding the start of a permanent rescue program.

They may be working against the clock. Greece has yet to secure a second bailout amid questions about whether it can satisfy the aid terms. Economists at Citigroup Inc. say they expect the country to begin restructuring its debt as soon as December. Analysts at JPMorgan Chase & Co. predict the euro area will start contracting in the fourth quarter and that the ECB will cut interest rates next month.

‘Fundamental Issues’

“Policy makers need to move beyond ad hoc financial responses to address fundamental issues about the nature of European monetary and economic integration,” Deutsche Bank AG Chief Executive Officer Josef Ackermann told a banking conference in Washington.

Germany’s government has already begun debating how to shore up its banks if Greece defaults. One official from a G-20 country said yesterday that an eventual insolvency in the Mediterranean nation is likely.

Speaking to Greek Public Service television from Washington, Greek Finance Minister Evangelos Venizelos said a default would be “catastrophic” and will “never happen.”

Proposals to beef up the facility’s spending power include using the bonds it buys from stressed states as collateral for fresh loans from the ECB or offering the central bank credit protection for helping investors buy debt.

Increasing Heft

German Finance Minister Wolfgang Schaeuble said the ECB wasn’t necessarily needed to increase the facility’s heft, while Bundesbank President Jens Weidmann said involving the central bank would violate EU treaties. Schaeuble again rejected euro area countries issuing joint bonds.

European finance officials will also examine next week the cost advantages of setting up the permanent fund, known as the European Stability Mechanism, a year earlier than its currently planned July 2013 start, according to a document prepared for the meetings and obtained by Bloomberg News. Spanish Economy Minister Elena Salgado said yesterday she would back early adoption of the fund and Schaeuble said that may be possible.

In a sign some in Europe resent Geithner’s campaign, outgoing ECB Executive Board member Juergen Stark said governments should do their “own homework before they give advice.” ECB President Jean-Claude Trichet noted Sept. 23 that the U.S. budget gap dwarfs that of the euro-area.

While the IMF vowed to “strongly support” Europe, Managing Director Christine Lagarde said its $384 billion lending chest may not be enough to meet all aid requests if the world economy worsens. The current lending capacity “looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders,” she said.

To contact the reporters on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net. Eric Martin in Washington at emartin21@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Japan May Boost Extra Budget Past 11 Trillion Yen, Maehara Says

By Aya Takada - Sep 25, 2011 2:10 PM GMT+0700

Seiji Maehara, policy affairs chief of the ruling Democratic Party of Japan, said the government may increase spending for this fiscal year beyond the originally proposed 11 trillion yen ($144 billion) in a third supplementary budget.

“There are insufficient points about the government plan,” Maehara said today on public broadcaster NHK.

To contact the reporter on this story: Aya Takada in Tokyo at atakada2@bloomberg.net

To contact the editor responsible for this story: Jim McDonald at jmcdonald8@bloomberg.net

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Ivory Coast Aims to Boost World Cocoa Market Share to 50%, President Says

By Marvin G. Perez - Sep 25, 2011 5:57 AM GMT+0700

Ivory Coast, the world’s largest- producer of cocoa, aims to increase its share of the world market to 50 percent as the West African country recovers from a civil war.

Reform of the cocoa industry “will be implemented in the next month or two,” President Alassane Ouattara said in an interview today in New York. “We will liberalize the whole chain” and attract investment so that cocoa is processed in the country, he said.

The country produces about one-third of global cocoa output. World prices for the commodity shot up to a 32-year high during the four months of violence between Ouattara and those loyal to his predecessor, Laurent Gbagbo. Gbagbo ruled Ivory Coast for a decade and refused to cede power after losing the presidency in a November election.

Damage to the economy caused by the impasse forced Ivory Coast to ask for a reassessment of $2.3 billion of Eurobonds after it missed two coupon payments on the debt in January and June. The International Monetary Fund is considering a $614 million loan for Ivory Coast under the lender’s extended-credit facility program, the Fund said on Sept. 15.

To restore investor confidence, Ouattara, an economist and a former deputy managing director at the IMF, hopes that the country will resume making payments on debt obligations next year as the economy improves, he said.

Restructuring Debt

The country’s economy is expected to expand 8 percent to 9 percent next year, after contracting 5 percent this year, the IMF said on Sept. 15. The government has restructured short-term bills into longer-term bonds after the previous government issued up to $1.2 billion in short-term Treasury bills maturing in three and six months, Ouattara said.

The government wants to increase the share growers get from cocoa prices. Currently, producers receive about 35 percent to 40 percent and the goal is to take that to “50 percent to 60 percent,” as part of the reconstruction efforts, he said.

“Farmers should get the fair share of what they produce,” Ouattara said.

Reforms in the cocoa industry would aim to eliminate some of the current layers of intermediaries between growers and exporters, he said, without elaborating.

To contact the reporter on this story: Marvin G. Perez in New York at mperez71@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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XCMG Construction Said to Cancel Plans to Raise $1.1 Billion in Stock Sale

By Fox Hu and Kelvin Wong - Sep 25, 2011 12:36 PM GMT+0700

XCMG Construction Machinery Co., China’s biggest crane maker, scrapped plans to raise about $1.1 billion in a share sale in Hong Kong after some underwriters backed out of commitments to buy any unsold stock, three people with knowledge of the matter said.

Bankers on the deal may meet tomorrow to try to restructure the offering, said one of the people, who declined to be identified as discussions are private. XCMG pulled the sale after some underwriters backed out of an agreement to purchase any stock the company failed to sell, a commitment known as hard underwriting, the people said.

Sany Heavy Industry Co., the construction-equipment maker run by China’s richest man, is also delaying the sale pricing of its $3.3 billion Hong Kong stock sale as the city’s benchmark Hang Seng Index posted its biggest weekly loss since 2008. The sell-off has caused investors to lose money on 44 out of 51 initial public offerings this year, according to data compiled by Bloomberg, with shoemaker Hongguo International Holdings Ltd. tumbling 15 percent on its debut on Sept. 23.

Shenzhen-traded XCMG had planned to sell stock amounting to about 15 percent of the enlarged share capital at HK$21.35 ($2.74) to HK$26.39 apiece, people with knowledge of the transaction said Sept. 23.

Two phone calls made outside of regular business hours to XCMG’s headquarters in Xuzhou City, Jiangsu province, went unanswered. Reuters reported earlier that XCMG had delayed the offering, citing people it didn’t identify.

Market Value

XCMG said in a January 5 statement to the Shenzhen stock exchange that it planned to sell as much as a 20 percent stake in Hong Kong. XCMG fell 3.3 percent in Shenzhen trading last week, reducing the company’s market value to 41 billion yuan ($6.4 billion).

The Hang Seng Index slumped 9.2 percent last week to close at a more than two-year low. The Bloomberg Hong Kong IPO Index, which measures the first-year performance of new stocks, has fallen 28 percent this year.

Xiao Nan Guo Restaurants Holding Ltd. scrapped a HK$581 million ($75 million) IPO, according to a Sept. 21 filing. China Everbright Bank Co. pulled a $6 billion offering in August, having considered cutting the size of the sale in half as stocks dropped.

Sany, headed by Chairman Liang Wengen, is pushing ahead with an investor roadshow after delaying the sale pricing, previously set for Sept. 26, Tang Xiuguo, president of its parent company, said Sept. 23.

Enough Cashflow

The share-sale delay won’t affect Sany’s expansion plans, including construction of a U.S. plant that’s due to open this year, as the company has enough cashflow to finance operations he said.

Companies have raised $40 billion in Hong Kong share sales this year, led by China Construction Bank Corp.’s $8.3 billion offering last month. The tally is about the same as in the year- earlier period.

BOC International Ltd., Goldman Sachs Group Inc., Morgan Stanley (MS), China International Capital Corp., Credit Suisse Group AG (CSGN), ABCI Securities Co. and BNP Paribas (BNP) SA were among banks arranging the sale for XCMG, according to the people.

To contact the reporter on this story: Fox Hu in Hong Kong at fhu7@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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NASA Says Six-Ton Research Satellite Falls to Earth Over the Pacific Ocean

By Dan Hart - Sep 25, 2011 1:51 AM GMT+0700

An 11,023-pound research satellite used in the study of Earth’s ozone layer came down today off the West Coast of the U.S., the National Aeronautics and Space Administration said on its website.

The Upper Atmosphere Research Satellite, which weighed five metric tons, entered Earth’s atmosphere between 11:23 p.m. yesterday and 1:09 a.m. New York time this morning, NASA said. The Joint Space Operations Center at Vandenberg Air Force Base in California said the satellite came down over the northern Pacific Ocean, off the coast.

Nicholas Johnson, an orbital decay scientist for NASA at Johnson Space Center in Houston, said the agency doesn’t know the precise point where the satellite entered the atmosphere. Earlier, the agency said it anticipated 26 objects from the satellite’s breakup to survive and land in an area more than 500 miles (804 kilometers) long.

“The vast majority of that track was over water,” said Johnson in a conference call. He said there hadn’t been any sightings of the satellite or debris.

UARS was released by the space shuttle Discovery in 1991 to study chemicals in the atmosphere, including chlorine monoxide, which destroys ozone, and methane. It was decommissioned in 2005, with six of its 10 instruments still functioning, and moved into a lower orbit.

The last time a large NASA satellite made an uncontrolled landing was in 1979, when Skylab, a space station weighing 75 metric tons and Pegasus 2, a satellite, both fell to Earth.

To contact the reporter on this story: Dan Hart in Washington at dahart@bloomberg.net

To contact the editor responsible for this story: Sylvia Wier at swier@bloomberg.net

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Australia ‘Rock Solid’ in Midst of Global Crisis, Swan Says

Australia is facing the current global economic turmoil from a position of strength, with low unemployment, a strong banking system and a big investment pipeline, Treasurer Wayne Swan said today.

“The international economy has entered a dangerous new phase,” Swan wrote in his weekly e-mailed economic note. Still, Australia’s “successful response to the global financial crisis and record of economic reform means our fundamentals today are rock solid.”

Global markets are in turmoil on fears that a default by Greece will exacerbate an 18-month debt crisis and tip Europe and the global economy back into recession. The International Monetary Fund cut its forecast for global economic growth this month and predicted “severe” repercussions if Europe fails to contain its debt crisis or if U.S. policy makers reach an impasse over a fiscal plan.

European governments are exploring speeding the start of a permanent rescue fund for their cash-strapped economies and senior finance officials will examine next week the cost advantages of setting up the fund, known as the European Stability Mechanism, a year earlier than its currently planned July 2013 start, according to a document prepared for the meetings and obtained by Bloomberg News.

Same Determination

“Major economies need to deal with the current challenges with the same determination that saw us stare down the global financial crisis,” Swan wrote in his note from Washington, where he attended meetings of the Group of 20 finance ministers, the IMF and the World Bank.

“While the Australian economy has grown over 5 percent since the crisis struck, many of our peers still haven’t made up the ground they lost,” Swan said.

Australia’s gross domestic product expanded more than economists forecast last quarter, driven by rising consumer spending and a rebound in exports after natural disasters disrupted coal mining at the start of the year. The economy will grow by 1.8 percent this year, the Washington-based IMF said last week.

The U.S. economy will expand 1.5 percent this year, and Europe 1.6 percent, assuming volatility in financial markets doesn’t worsen and U.S. authorities agree on a fiscal plan that both supports the economy and outlines fiscal consolidation over the medium term, the IMF said.

‘Political Phase’

A deadlock in the U.S. Congress over extending the nation’s debt limit and trimming budget limits brought the world’s biggest economy to the brink of default on July 31.

“The crisis has now entered a new ‘political phase’ with markets calling for swift action by policy makers,” Swan said. “Even though we are likely to see bouts of instability continue for some time to come, we need to remember that our situation couldn’t be more different to many of our peers.”

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

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Geithner Urges End to European ‘Cascading Default’ Threat

By Ian Katz and Simon Kennedy - Sep 25, 2011 3:13 AM GMT+0700
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U.S. Treasury Secretary Timothy F. Geithner. Photographer: Joshua Roberts/Bloomberg

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Timothy Geithner, U.S. treasury secretary, stands after the the International Monetary Fund (IMF) Governors group photo at the IMF and World Bank annual fall meeting in Washington. Photographer: Joshua Roberts/Bloomberg

U.S. Treasury Secretary Timothy F. Geithner pressed European policy makers to intensify their efforts to end the 18-month sovereign debt crisis and avoid the “threat of cascading default, bank runs and catastrophic risk.”

In his strongest public push yet for Europe to step up its crisis-fighting, Geithner said strains in the euro-area’s budgets and banks are the “most serious risk now confronting the world economy.” He urged governments to unite with the European Central Bank to immediately “create a firewall against further contagion.”

Geithner’s call -- made today at the annual meeting of the International Monetary Fund in Washington and echoed by other finance chiefs -- came at the end of a week in which stocks entered their first bear market in two years. The slide partly reflected worries among investors that Greece is nearing default and Europe’s repeated failure to stop its woes from spreading may cause another global recession.

Bank of Canada Governor Mark Carney said Europe should make available about 1 trillion euros ($1.35 trillion) to “overwhelm” the crisis, more than double the current rescue package. U.K. Chancellor of the Exchequer George Osborne called for “credible” action to support European banks, some of which the IMF says need recapitalizing. The Washington-based lender said today it’s ready to “strongly support” Europe.

‘Resolved Promptly’

“The sovereign debt crisis in the euro area needs to be resolved promptly to stabilize market confidence,” People’s Bank of China Governor Zhou Xiaochuan told the IMF.

There are indications European governments are heeding the lobbying as they study working with the ECB to boost the firepower of their bailout fund through leverage. They may also accelerate the start of a permanent rescue program and the ECB could soon increase lending to banks.

The pressure is on them as billionaire investor George Soros said today that Greece may be unable to avoid default and its neighbors should prepare for that. Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian and former U.S. Treasury Secretary Lawrence Summers drew parallels this week between Europe’s troubles and the 2008 financial crisis.

Economists at Citigroup Inc. said yesterday they now expect Greece to begin restructuring its debt as soon as December, while those at JPMorgan Chase & Co. said the euro area will start contracting in the fourth quarter and that the ECB will cut interest rates next month.

Greek Default

Germany’s government has already begun debating how to shore up German banks in the event Greece defaults, while ECB Governing Council member Klaas Knot said this week he no longer excludes a Greek bankruptcy. One official from a G-20 country said an eventual Greek default is likely.

European finance officials will examine next week the cost advantages of setting up the fund, known as the European Stability Mechanism, a year earlier than its currently planned July 2013 start, according to a document prepared for the meetings and obtained by Bloomberg News.

Drawing on paid-in capital, the ESM will have a 500 billion-euro ($677 billion) war chest that could help shield countries like Italy. It also includes provisions for sharing costs with bondholders for countries with “unsustainable” debt.

Temporary Fund

Asked by Bloomberg Television about bringing forward the ESM’s start date, European Union Economic and Monetary Affairs Commissioner Olli Rehn said the focus for now is on upgrading the temporary fund, the 440 billion-euro European Financial Stability Facility. Spanish Economy Minister Elena Salgado said she would back early adoption of the fund.

Debate increased among EU officials this week over how to ratchet up the spending power of the EFSF through leverage once a revamp in about mid-October leaves it able to buy bonds in markets and aid banks.

One way of achieving that, proposed by economists Daniel Gros and Thomas Mayer, is for the EFSF to operate like a bank and borrow from the ECB, using the bonds it purchases as collateral. Other suggestions are for the EFSF to guarantee ECB bond purchases or help the central bank make loans to investors who buy stressed-country debt, with the facility absorbing initial losses.

Using leverage mimics the U.S. response to the 2008 crisis. While Geithner pitched the idea at a Sept. 16 meeting with euro- area finance chiefs in Poland, it met initial resistance from Germany, Europe’s dominant economy.

‘Cannot Wait’

“Decisions as to how to conclusively address the region’s problems cannot wait until the crisis gets more severe,” Geithner said today.

The ECB may also step up its own initiatives to support markets and growth, Governing Council members Luc Coene and Ewald Nowotny said in Washington. Potential measures include the revival of 12-month loans to banks and Coene didn’t rule out cutting the 1.5 percent benchmark interest rate.

ECB President Jean-Claude Trichet, attending his final IMF meetings before retiring Oct. 31, yesterday said European policy makers “are not blind and we are not hiding.”

Greek Prime Minister George Papandreou said yesterday his government was determined to proceed with the implementation of the July 21 decision for a second financing package. Osborne said no G-20 plan had been formed for a Greek default and Spain’s Salgado said there had been no discussion over such an event.

To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Simon Kennedy in Washington at skennedy4@bloomberg.net.

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JPMorgan’s Kasman Sees European Recession, Greek Depression

By Dawn Kopecki - Sep 25, 2011 5:36 AM GMT+0700

JPMorgan Chase & Co. (JPM) chief Economist Bruce Kasman said Greece is insolvent and headed toward a depression that will cause catastrophic damage across Europe.

“We have a social contract that’s been broken between Greece and the rest of the region,” Kasman said today during a panel discussion at the Institute of International Finance annual meeting in Washington. “Greece is insolvent and the European Union needs to deal with that. It hasn’t yet come to terms with that.”

Kasman said the uncoordinated and sporadic response from the region’s political leaders has “fed fears” in the markets that they don’t have the wherewithal to deal with the region’s fiscal problems. The lack of clarity in solving Greece’s credit problems has exacerbated the problem.

“Damage is done,” Kasman said. “Europe in our mind is entering recession.” Greece is heading toward a depression, he said.

To contact the reporter on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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Gruebel Resigns From UBS Following Trading Scandal

By Giles Broom - Sep 25, 2011 5:00 AM GMT+0700
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Oswald Gruebel, chief executive officer of UBS AG. Photographer: Sebastian Derungs/AFP/Getty Images

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Sept. 22 (Bloomberg) -- Kweku Adoboli, the UBS AG trader accused of fraud and false accounting that led to a $2.3 billion loss, arrives at a hearing in a London court where he may ask to be released on bail while awaiting trial. Maryam Nemazee and Poppy Trowbridge report on Bloomberg Television's "The Pulse." (Source: Bloomberg)

UBS AG (UBSN), Switzerland’s largest bank, named an interim chief executive officer after Oswald Gruebel resigned the post in the wake of a $2.3 billion loss from unauthorized trading.

Gruebel, who held the top job since February 2009, will be replaced on an interim basis by Sergio P. Ermotti, the bank’s CEO for Europe, the Middle East and Africa, UBS said yesterday in a statement. Gruebel, 67, handed in his resignation as the Zurich-based bank’s board of directors met in Singapore.

“That it was possible for one of our traders in London to inflict a multibillion loss on our bank through unauthorized trading shocked me,” Gruebel said in a memo to staff yesterday. “This incident has worldwide repercussions, including political ones. I did not take the step of resigning lightly. I am convinced that it is in the best interests of UBS to approach the future with a new leader at the top.”

Gruebel, who joined UBS after about 37 years at rival Credit Suisse Group AG, is the only person to have served as CEO of both of the biggest Swiss banks. Brought out of retirement to rebuild UBS after record losses, he returned the bank to profit about six months after arriving, resolved a dispute with the U.S. over banking secrecy that threatened the firm’s existence and stemmed nine straight quarters of client defections at the private bank. He also led an expansion of the investment bank.

‘Excellent Job’

Chairman Kaspar Villiger, on a conference call with reporters, said the board tried unsuccessfully to persuade Gruebel to remain until the annual shareholders meeting next year. He will be paid for a six-month notice period and have no further role at the bank. Carsten Kengeter, the head of UBS’s investment bank, did an “excellent job” in covering positions after the crisis and there is no doubt about his future, Villiger said.

UBS plans to shrink the division following the loss. Gruebel and Kengeter, 44, tried for the last two years to rebuild the unit into a top-tier investment bank, hiring more than 1,700 people and bringing in new business heads to replace those that left or were fired. They also increased risk-taking. Still, market turmoil and rising capital requirements had led them to begin reversing the buildup even before the trading loss. About 45 percent of 3,500 job cuts announced last month were slated for the investment bank.

‘Less Complex’

“In the future, the investment bank will be less complex, carry less risk and use less capital to produce reliable returns and contribute more optimally to UBS’s overall objectives,” Villiger said yesterday. “The investment bank will continue to strengthen its alignment with UBS’s wealth management businesses.”

UBS will probably scale back credit businesses that haven’t been very profitable and that will be affected most by the higher capital requirements under Basel III, said Cormac Leech, an analyst at Canaccord Genuity Ltd. in London who has a “hold” rating on UBS stock. The equities business, by contrast, “has a relatively high return so you’d expect them not to close that down,” Leech said.

UBS will announce further changes to the investment back in a presentation to investors scheduled for Nov. 17, Ermotti said on the call with reporters.

Gruebel an ‘Obstruction’

“They’ve got to change the aspirations of the investment bank and they’ve got to shrink it,” said Peter Thorne, a London-based analyst at Helvea SA. “I presume Gruebel was a bit of an obstruction to that because he felt the world was going back to the good old days and UBS was going to be a powerful investment bank.”

UBS said it may be unprofitable in the third quarter after the unauthorized trading. The loss, less than two months after Gruebel said the firm had “one of the best” risk-management units in the industry, raised questions about the bank’s controls.

It resulted from trading in Standard & Poor’s 500, DAX and EuroStoxx index futures over the past three months, UBS said on Sept. 18. While the positions were taken within the “normal business flow of a large global equity trading house,” the size of the risk was hidden by phony trades, UBS said at the time.

Kweku Adoboli, 31, the UBS trader charged with fraud and false accounting that may have resulted in the loss, remained in custody after a hearing in London on Sept. 22. He has yet to enter a plea.

The bank’s shares have declined by 7.4 percent in Swiss trading since the trading loss was announced, and 34 percent this year. That compares with a 37 percent tumble in the Bloomberg Europe Banks and Financial Services Index, which tracks 46 companies.

‘Terrible Blunder’

Gruebel’s decision to leave throws into relief the lack of a succession plan at UBS, analysts said. Chairman Villiger, 70, is scheduled to step down in 2013 and be replaced by former Bundesbank President Axel Weber, 54, who lacks hands-on experience running a commercial bank. The trading loss also reduces the chance Kengeter will ascend to the top job.

The departure of Gruebel may prove a blow to UBS and suggests a worrying level of disorder, especially as Chief Financial Officer Tom Naratil took up his post only three months ago, said Chris Wheeler, an analyst at Mediobanca Securities SpA in London.

“The board has made a terrible blunder” in not persuading him to stay, said Wheeler, who has an “outperform” rating on the stock. “That would have allowed some continuity with Axel Weber coming in. This is a bank now in disarray. It’s got a brand new CFO and now they’ve let the CEO walk away.”

Ermotti

Ermotti, a 51-year-old Swiss national who joined UBS in April after working at Merrill Lynch & Co. and UniCredit SpA (UCG), will be interim CEO while the board seeks a permanent successor to Gruebel, the bank said. In his 18 years at Merrill Lynch, Ermotti oversaw businesses including the global equities division before leaving in 2003 to join UniCredit, Italy’s biggest bank.

As UniCredit’s investment banking chief, Ermotti also supervised global transaction and private banking. Ermotti had aimed to compete with the world’s top securities firms as mergers soared and business flourished before the subprime crisis spread and credit became scarce. He later scaled back the plan to focus on corporate and investment banking business in UniCredit’s home markets.

Ermotti, who became deputy CEO at UniCredit in July 2007, will be a candidate for the permanent top job at UBS, Helvea’s Thorne said.

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editor responsible for this story: Frank Connelly in Paris at fconnelly@bloomberg.net

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