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Sat, Jul 07, 2007 - Page 10 News List

UBS announces surprise CEO switch

POWER SHIFT While the Swiss bank was silent on the reason for the change, analysts attributed it to the hedge fund group's huge losses in subprime mortgage investments


In a surprise move, the Swiss bank UBS said late on Thursday that its chief executive, Peter Wuffli, would be succeeded by his deputy, Marcel Rohner, effective immediately.

The abrupt power shift at UBS, one of the world's largest money managers for wealthy individuals, comes amid growing criticism about rising expenses and disagreements over strategy at the bank.

UBS has also suffered a string of defections in its US investment banking group, and it took steep losses earlier this year in subprime mortgage investments in its hedge fund group, Dillon Read Capital Management, which ultimately led to that unit being shut down.

"Wuffli is no doubt taking the fall for the Dillon Read Capital Management debacle," said Meredith Whitney, an equity analyst at CIBC World Markets. "That was part of a succession of really negative events for the bank."

About a year ago, Marcel Ospel, the chairman of the board, proposed initiating a succession plan and nominated Wuffli, 49, who has led the bank for four years, to be his successor. The board, however, decided not to accept his proposal, UBS said in a statement on Thursday, adding "it does not view the succession of the CEO to the position of chairman as automatic."

The board also asked Ospel, 57, to serve at least another three-year term as chairman.

Wuffli, a former partner with McKinsey & Co, was named chief executive of UBS in 2003.

In recent months, the bank has struggled with a lagging stock price. Some analysts and investors attribute that to its conglomerate structure, which combines investment banking, asset management and private banking.

Wuffli had stood firmly against shearing off less profitable divisions of the bank. But internal strife and frustration inside the firm began bubbling to the surface this year when the investment bank president, Ken Moelis, announced in the spring that he was leaving the firm.

Moelis, who worked alongside the junk-bond king Michael Milken at Drexel Burnham Lambert in the 1980s, was hired in 2001 by UBS, which had struggled to gain a foothold in investment banking in the US. Moelis made headway in building its profile as an adviser on mergers and acquisitions and in raising capital for corporations but grew frustrated with the bank's unwillingness to provide financing to the fast-growing world of leveraged buyouts.

A number of investment bankers that Moelis had recruited to UBS left soon after he did, analysts said.

Meanwhile, in May, UBS shut down its hedge fund group, Dillon Read, which had been started in 2005 amid much fanfare. To build up a presence in the hedge fund industry quickly, UBS transferred many top traders from the investment bank to the hedge fund unit and seeded it with hundreds of millions of dollars of UBS capital. But earlier this year, bad bets in subprime mortgage investments led to losses of US$124 million.

UBS was the first Wall Street firm to announce heavy losses in the subprime sector, although it was not the only brokerage firm to do so. Last month, Bear Stearns said it would provide up to US$1.6 billion in secured financing to bail out one of two hedge funds run by its asset management division that had sustained substantial losses in complex loans and securities backed by subprime mortgages.

In the case of UBS, what shocked some analysts and investors was the US$300 million it cost to close Dillon Read. Of that amount, US$200 million went to severance payments and other costs for the hedge fund manager and his team.

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