UBS Chief's Message to Board: Stick with 'Integrated' Bank

UBS CEO Oswald Gruebel will stress to the board of directors that he wants the investment bank to remain part of Swiss bank's "integrated banking model" in meetings on Thursday and Friday, sources said, after rogue trading cost the bank $2.3 billion.

Gruebel is under pressure to scale down, ring-fence or even split off UBS's investment banking business from its core wealth management unit to shield private clients.

"UBS wants to have an integrated banking model," a source close to the bank told Reuters. "It is a consistent message the CEO has been delivering."

A second source said Gruebel also delivered the same message to senior Asian executives of the bank before the executive board met in Singapore on Wednesday.

"One incident doesn't mean UBS will rush to sell the investment bank," a source who attended one of the meetings told Reuters.

The bank is widely expected to speed up an overhaul of its investment bank that had been planned for announcement at a November 17 investor day. Big shareholders have signaled they could wait until then while the bank completed an internal investigation, another source at the bank said.

Gruebel told Reuters in Singapore on Wednesday that he had the support of the bank's board ahead of its first meeting since announcing the loss.

UBS trader Kweku Adoboli was charged with fraud and false accounting dating back to 2008 last week, prompting criticism of the bank's control mechanisms and integrated business model.

INVESTMENT BANKING CRITICAL

"The view from the (executive) board is very clear. Investment banking is a very important and critical part to the overall strategy together with the wealth management," said a third source.

"This one incident is annoying, it is very annoying, but that's not going to change the overall strategy."

But Gruebel will have to take steps to reduce investment banking risks after UBS's biggest shareholder Singapore wealth fund GIC publicly expressed disappointment and concern at the "lapses."

GIC has lost more than half of its investment in UBS since it bailed out the Swiss wealth manager in 2007.

Gruebel had been expected to scale back proprietary trading and fixed income operations, but not do away with them completely.

Gruebel, a gruff 67-year-old German who previously ran Credit Suisse , was brought out of retirement in 2009 to help clean up UBS after huge losses on subprime mortgage assets forced the Swiss government to bail out the bank.

He initially indicated he would only stay in the job for a couple of years to get the bank back on its feet but suggested recently that he could stick around at least until former Bundesbank boss Axel Weber takes over as chairman in 2013.

UBS has been grooming Sergio Ermotti, the former deputy chief executive of UniCredit who joined the bank as Europe, Middle East and Africa chief in April, but until the scandal Gruebel had signaled that he was in no hurry to go.

The UBS executive board met on Wednesday before its wider set of board members gather later this week. The meeting, one of four per year, has strategic changes to the investment bank on the agenda, said several sources with direct knowledge of the plans.

UBS is a major sponsor of Formula One motor racing's Singapore Grand Prix, which takes place on Sunday.

(Editing by Kim Coghill)