This content is from: Home

INSIDE II - Swiss Miss

Success has many fathers — so the proverb goes — while failure is an orphan.

Success has many fathers — so the proverb goes — while failure is an orphan. The orphan, we frequently see in business, is soon abandoned.

Consider the unfolding saga at UBS, which early this month deposed CEO Peter Wuffli after nearly four years at the helm, replacing him with his deputy, Marcel Rohner. As chronicled in this month’s cover story by Staff Writer Pierre Paulden (Bank to Wuffli: Not You & Us, page 40), Wuffli had been under pressure recently from shareholders to improve performance. Some were even beginning to suggest that the giant Swiss institution should consider splitting its investment banking division from its massive wealth and asset management operations. Wuffli opposed any such move, arguing in favor of the synergies of the businesses. The UBS board agreed, reaffirming the bank’s commitment to the strategy but holding the CEO accountable for the botched execution of late.

In one sense, the dissatisfaction with UBS is astonishing — though a sign of more demanding times. Few organizations have grown as rapidly or transformed themselves as thoroughly as has the Swiss bank, under the guidance of Marcel Ospel, who, according to this month’s announcement of management changes, has agreed to remain as chairman for at least another three years. Beginning in the early 1990s, Ospel turned Swiss Bank Corp., then the third-biggest bank in the country, into one of the world’s premier institutions through a series of astute mergers and acquisitions, the most notable of which was its 1998 combination with the bigger UBS, whose name was retained. Following Ospel’s game plan, UBS established itself as the world’s dominant wealth and asset manager while becoming an investment banking power in Europe and Asia. In the past five years, its share price has risen more than that of any of its major global rivals, save Goldman Sachs.

That’s an impressive performance, yet not enough, as Paulden shows in his piece. UBS has struggled to gain traction in the U.S. investment banking market, and it has fallen behind rivals in its fixed-income business, a powerful engine for making money today. One reason: The bank has been reluctant to take on too much risk — either in trading or in lending to leveraged-buyout firms — in what it sees as frothy markets.

In May it announced it was shutting down an internal hedge fund after $124 million in losses in subprime mortgages, one of the first victims of that market’s decline. Senior deal makers have decamped. It missed earnings expectations in two of three recent quarters because of the investment bank, and its share price performance has lagged that of rivals over the past year.

For all of this Wuffli took the fall. Of course, it’s not the first time UBS has failed to find a successor to Ospel. In 2001 then-group president Luqman Arnold left after a dispute with the visionary Ospel. Perhaps at UBS success has had only one father.