UBS AG's U.S. wealth management unit Paine Webber is not a core part of the bank's operations but will not be sold at present, UBS Chief Executive Oswald Gruebel was quoted saying in the FT.

We've had a lot of inquiries from potential buyers but it wouldn't make sense to sell at current valuations, Gruebel said, according to the report in Tuesday's Financial Times.

Gruebel also told the FT the bank wanted to cut ties with the Swiss government by buying its way out of a bad bank deal and aimed to return to health within a year.

The bank previously said it had no plans to buy back toxic assets but could consider such a course of action at some point in future.

UBS bought U.S. brokerage Paine Webber in 2000 for about $10 billion and merged it into UBS Americas, its U.S. wealth management subsidiary, signaling its intention to aggressively expand in the U.S. wealth management segment.

UBS Americas had over $600 billion in assets at the end of 2008, according to the UBS annual report.

However the dual challenges of the financial crisis and a damaging tax fraud probe by the U.S. government, which caused considerable brand damage to UBS, have forced the bank to pare back its U.S. wealth management business.

In April, the world's second largest wealth manager by client assets cut 2,000 U.S. jobs as part of a restructuring plan to cut 8,700 jobs worldwide. Earlier in September, sources close to the situation told Reuters the bank had cut a further 200 positions at the U.S. arm.

The bank has locked horns with Switzerland's financial regulator, FINMA, over its aim to leave the bad bank scheme, under which it pays for protection against big losses on toxic assets, the paper said.

With credit markets recently recovering, the bank believes it could take the assets back onto its balance sheet, but conceded it may not be able to do so until late 2010, the newspaper said.

It is very expensive, Gruebel said of the bad bank scheme.

Separately UBS said Fiat SpA Chief Executive Sergio Marchionne and Royal Dutch Shell Plc Chief Executive Peter Voser will not stand for re-election to its board next year.

Marchionne had been mentioned as a possible alternative CEO for UBS in the midst of its troubles earlier this year but the bank turned to former Credit Suisse boss Gruebel.

(Additional reporting by Jan Harvey in London and Emma Thomasson in Zurich; Editing by Dan Lalor and David Holmes)

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