Abigail with attitude: Changes continue at UBS
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Abigail with attitude: Changes continue at UBS

“A UBS insider points out that the landscape in the securities division is flatter: ‘A layer has been removed.’ But I still think Carsten Kengeter has too many lieutenants”

April is a time for renewal. In London, the scent of spring is in the air, a new tax year begins and it is the month of my birthday. 

In the financial world, spring often marks the start of something new. Annual bonuses have been paid and it is a chance to change employers. Nevertheless, I was surprised to see that Matthew Koder, the former global head of capital markets at UBS, had jumped ship to become head of corporate and investment banking at Bank of America, Asia Pacific. Matt had been at UBS for eight years and was well known for his Asian connections. He had run Asian equity capital markets for UBS before being transferred to London. UBS has always had an excellent Asian franchise, which is now run by the previous co-head of the investment bank, Alex Wilmot-Sitwell, and Chi Won Yoon. Koder apparently was in line for a much bigger job at UBS but preferred to take the golden sovereign of mighty Montag, the chief executive of Bank of America’s investment bank. Tom Montag himself is no stranger to impressive compensation packages. When Tom was recruited in 2008 by John Thain, the former head of Merrill Lynch (Remember him? The guy who spent $35,000 on a "commode with legs" for his office), Montag’s own package amounted to nearly $90 million.

An insider points out that the landscape in the securities division is now flatter, with the four heads reporting directly to Carsten Kengeter. “Effectively, a layer has been removed,” Source said. “With these senior guys, it’s all about gaining traction in a new environment and sometimes it just doesn’t work out ”

Koder’s move is both foreseeable and unexpected. Since Carsten Kengeter joined UBS in September 2008 to help rebuild the investment bank, there have been a lot of new hires. I have commented before how there seemed to be a lot of chiefs surrounding King Carsten, who now heads UBS’s investment bank. I wasn’t sure whether this was a competition to see who survived or a "let’s hire talent while we can" strategy.

A source murmurs: "It’s not fair to blame Carsten for hefty hiring. The fixed-income area was on life-support when he took over. It needed a total blood transfusion. Remember UBS had to write down nearly $50 billion on toxic assets." Nevertheless, some of the new blood has proved short-lived: Neal Shear left recently, a year into the head of global securities role. Lower down the totem pole, Dimitrios Psyllidis, the former co-head of FICC and head of macro, also exits after less than two years. But an insider points out that the landscape in the securities division is now flatter, with the four heads reporting directly to Carsten. "Effectively, a layer has been removed," Source said. "With these senior guys, it’s all about gaining traction in a new environment and sometimes it just doesn’t work out."

I think Carsten still has too many lieutenants –there are three co-heads of investment banking (shouldn’t there simply be a global head?), two co-heads of FICC and two co-heads of equities. Of course, this diffusion of power is not unusual in today’s global investment banks where product and regional management struggle to coexist. But might this plethora of leaders delay decision-making? It took three weeks to announce Koder’s successor: David Soanes. This is a lengthy gestation – given that he was the deputy head – and hints at internal jostling.

Kengeter has achieved a lot in a little time and doesn’t receive much credit for this. As his boss, Oswald Grübel, put it, he has "turned round... a totally destroyed franchise". However, Kengeter and his senior management team remain under tremendous pressure to increase profitability. The business made SFr2.2 billion ($2.4 billion) in 2010, which lags behind some of its global rivals.

When talking about UBS’s investment bank, it is important to refocus the camera and contemplate the whole organization. In February 2009, Grübel was lured out of retirement to try to restore what had become a blemish on the Swiss landscape. In 2010, the bank delivered a SFr7.5 billion net profit, which was a big improvement on 2009’s SFr2.7 billion loss.

Nevertheless, questions still swirl about the future of UBS. Is it any more than a powerful, albeit tarnished, wealth management business? "Grübel would probably sell the investment bank if he could," a source sighed. "But is there really a bid out there for a work in progress?" An insider denies this: "The synergies and opportunities for cross-selling in wealth management and investment banking are considerable."

Taciturn and dour Grübel is one of my heroes. Unlike many other banking chiefs, he is from a trading not a marketing background. Although I’ve never met the great man, I’m not sure cuddliness is part of his charm armoury. But he is an independent thinker, a tough decision-maker and he sees no need to run with the crowd. In a recent interview with the Financial Times, Grübel grumbled about European regulators, hurrumphed that contingent capital, a new debt instrument that converts into equity at a time of stress, was an unexploded time bomb before concluding with a flourish: "How to create sustainability in investment banking – that is the big question for the next few years. I hope to be the first to answer that." I particularly admire Grübel for forgoing his 2010 bonus on the basis that the UBS share price had not risen during the year and thus no value had been created for shareholders.

Most bank chiefs consider the share price of their organizations as an alien and uncontrollable force. Last year bank shares made limited headway, yet most senior bankers received plump packages. Their attitude was: "It’s business as normal." Essentially, shareholders gained nothing and senior management gained a lot. This is not good enough. I know that senior bankers’ compensation includes a substantial amount of stock and that sometimes the market undervalues a company. Nevertheless if the share price wobbles and shareholders lose out, why should management receive million-dollar pay packages? If you can’t create value for shareholders, ditch the suit and start digging ditches.

At UBS, Kengeter was well paid in 2009 and didn’t do badly in 2010 (SFr9.3 million, albeit with an 88% deferral of his bonus). If I were CK, I would be worried. If your boss is abstaining while you indulge, you’d better make sure you deliver beyond his wildest expectations. I will be watching developments at UBS with interest. What do you think?

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