I feel I had a small part in his murder. A year ago, I criticised the formation of UBS’ in-house hedge fund, Dillon Read Capital Management, by John Costas. In December 2006, I compared UBS’s third-quarter results to a limp lettuce leaf, wailed about its lax cost control and lamented that Costas’ hedge fund “does not sit easy on the stomach”. In May 2007, DRCM imploded, after losses in the sub-prime mortgage market.
In early June, I threw a hissy fit after numerous requests to meet the senior management of UBS’s investment bank were evaded. “Might it be possible that an hour with the Abigail with attitude column is not everyone’s idea of heaven?” I sulked, before thundering: “The demise of Dillon Read Capital Management was greeted gleefully by the press precisely because the operation has been surrounded in opacity.... UBS needs to re-think its press strategy.”
It was gratifying to see UBS heeding my advice. Twelve days after my article was published, Wuffli gave an interview to the Financial Times. A mere two weeks later, he was gone. An air of panic surrounded his ride in the tumbrel to the guillotine. “I think news started to leak, and they were rushed in to making an announcement,” a corporate communications specialist told me.
Wuffli’s deputy, 42-year-old Marcel Rohner, replaced his boss and chairman; Marcel Ospel extended his contract for another three years. A press release divulged that a year ago, Ospel “expressed a wish to initiate a generational change of management at UBS and therefore retire from his function within the foreseeable future. He also proposed that Peter Wuffli be nominated his successor.” Last week, the board rejected this strategy and Wuffli was bundled off-stage. “It was horribly brutal,” a mole moaned. “He became a non-person over night.”
I smell an information lacuna. The board’s rejection of plan A was also a clear rejection of Ospel’s authority. “You got it wrong, Marcel mate,” they said; but then invited him to stay on. They ignore his advice while flattering him by insisting he is indispensable. Isn’t this bizarre? “Look,” an insider explained patiently, “Marcel is the architect of UBS as we know it. He has spent most of his career at the firm. Obviously the board would not want to lose him.”
“Wuffli had to pay for the poor handling of the Dillon Read story,” a well-connected source said. “Remember, he signed off on its creation. And UBS lost good-will, reputation and money because of that decision.” An activist hedge fund manager was more strategic: “After the ABN Amro bid, you have to ask if some of these large financial institutions make sense anymore. For UBS and ING, the answer is probably ‘no’. At UBS, a wonderful wealth business is dragged down by a mediocre investment bank. Is this 42-year old kid, Rohner, going to be able to change that quickly enough?”
Oh dear, ominous words. However, an insider mused: “I’m not sure it would be that easy to unbundle the two businesses. There is quite a lot of cross-over. In Asia, for example, you act as the private banker to a tycoon and then you get a shot at the investment banking business.”
Meanwhile, John Costas, whose bright idea DRCM was, lingers on. I am informed that he still has his role as special adviser to the group executive board. I am sure he is being well-paid for this spurious assignment. Suneel Kamlani and Ramesh Singh are in charge of winding up and reintegrating DRCM, so what is Costas doing? The Abigail with attitude column calls for Mr Costas’ resignation.
Mystery
I wonder what Stan O’Neal, chairman and chief executive of Merrill Lynch makes of it all? UBS’s impressive wealth management business is weak in the US. Merrill’s private client business is mighty in America but punier elsewhere. A combination of the two would be more delicious than New York cheesecake. Stan could pick up the phone to Dick (Richard Fuld, Lehman Brothers’ chief executive) and offer him UBS’ investment bank, whose strong cash equities’ franchise complements Lehman’s fixed income business. I have heard it argued that private clients want the word ‘Switzerland’ on the nameplate. I wonder if that’s true, or merely an excuse for complacency on the part of smug Swiss employees? I look forward to discussing this and other questions with Suneel Kamlani, UBS investment bank’s chief of staff. I am meeting him in September.
In the name of Freedom
And talking of wealth management, GLG is a highly successful hedge fund. Indeed, it is the largest independent alternative investment manager in Europe. Nevertheless, I feel uneasy about its appearance in the public arena. In late June, a special purpose vehicle, Freedom Acquisition Holdings Inc acquired 28% of GLG Partners. Freedom is listed on the American Stock Exchange. The three principals of GLG, Noam Gottesman, Pierre Lagrange and Emmanuel Roman, received approximately $600 million in cash. I don’t like it when senior management cashes in. It says to me that they think this might be the peak of the business cycle. Perhaps a lot of people feel like me because the press release states: “GLG’s equity holders have committed to reinvest 50% of their after-tax cash proceeds into GLG’s funds at full fees.”
Freedom’s shares closed at $10.45 on Friday June 22, the business day before the GLG transaction was announced. This was an 8% rise on the closing level of the previous day. Friday’s volume in Freedom’s shares was more than 20 times Thursday’s volume. A GLG spokesperson had no comment on this trading pattern and directed me to Freedom’s advisers. They had no comment either.