By Jason Rhodes and Martin de Sa'Pinto
ZURICH, Sept 1 (Reuters) - Battle-scarred UBS boss Oswald
Gruebel's strength in the face of adversity could give his bank
the edge in testing months ahead as he fights former charge
Brady Dougan, CEO at Credit Suisse, for Swiss banking supremacy.
Gruebel, himself a former Credit Suisse chief, was lured out
of retirement in February 2009 to turn around UBS, Switzerland's
top bank, after it wrote down more than $50 billion on toxic
assets in the credit crisis and posted Switzerland's
biggest-ever corporate loss in 2008.
Dougan, a youthful-looking 51-year-old economics graduate
with an MBA from the University of Chicago, headed investment
banking at Credit Suisse under Gruebel and later helped CS rip
market share from its weakened nemesis during the crisis.
But since Gruebel arrived at UBS on Feb. 26, 2009 -- close to
the low point of the financial crisis -- its shares have rallied
around 60 percent and outperformed Credit Suisse, which had
fared far better through the crisis.
"He (Gruebel) had a phenomenal track record at CS, and now
at UBS he has the opportunity to give a repeat performance,"
said a banker who has worked with both Gruebel and Dougan.
There's still plenty to do. UBS shares shares still trade at
less than a quarter of their peak in 2007, while CS shares are
at just below half their peak, but this year UBS has risen 7
percent compared with a 10-percent fall in CS.
Graphic showing relative performance of UBS and Credit Suisse
UBS has further potential to outperform this year,
particularly if Gruebel succeeds in his top priority of stopping
clients leaving the bank in droves now the United States is set
to drop a damaging tax fraud case.
Motor racing fan Gruebel hopes a sponsorship deal with
Formula 1 will help attract clients in growing wealth management
markets like Asia and South America and that a major new
advertising campaign can re-establish faith in the bank.
UBS curbed proprietary trading activities to reduce risk
and increase liquidity in the crisis and Gruebel's tight rein on
risk and costs enabled UBS's fixed income, currencies and
commodities (FICC) operations to power group profit in the
second quarter, while Credit Suisse's investment banking
activities struggled amid flagging markets.
"When the market turned in the second quarter, CS did not
outperform as expected," said ZKB analyst Andreas Venditti.
"UBS's FICC target was 2 billion Swiss francs for the quarter.
Nobody expected it to be that high, but they did it."
Dougan hired investment bankers aggressively in the second
quarter just as markets flattened, and his bold strategy could
backfire in the third and fourth quarters.
Trading activity is going to be weak until first quarter
2011, said Vontobel analyst Teresa Nielsen, who sees both banks
as better plays than U.S. and European peers because of their
superior capital positions and balance sheets.
"In this environment UBS is the better placed of the two
because it hasn't hired as many people," Nielsen said.
Gruebel, a former Deutsche Bank trader, is admired by peers
as a fighter who possesses deep knowledge of investment banking,
wealth management and commercial banking at a time when most
banking executives tend to be specialists.
He has pushed through changes to take UBS to three
consecutive quarters of profit after a string of losses.
"Gruebel's experience and gravitas were vital for UBS in the
dark days," said Helvea analyst Peter Thorne.
The turnaround took some tough decisions, like cutting
11,000 jobs to 65,000 and selling a jewel in UBS's crown --
Brazil's wealth management unit Pactual -- for $2.5 billion just
three years after buying it for around the same price.
Analysts said Dougan may need to show the same resolve to axe
excess fat if his investment banking bet turns sour, and go well
beyond the 75 cuts made in Britain in August. To do that, Dougan
would have to admit misjudging the market.
That could put him under as much pressure as he has yet
faced, they said, and it was unclear how he might react.
Gruebel, it seems, thrives on that kind of pressure.
A German who was instrumental in shaping the universal
banking model in his adopted Switzerland, Gruebel stepped down
at the height of his success at Credit Suisse after turning the
bank around from a 3.31-billion Swiss franc loss in 2002.
Gruebel never landed the job of chairman at Credit Suisse
and many in Zurich's banking world suspect he still has
ambitions of chairing a top bank, though people close to Gruebel
say he has no such designs.
"He wants to get his hands dirty. He's a man of action, he
wants to move things as a CEO," said an investment adviser who
worked with Gruebel at CS.
Dougan was the surprise successor to Gruebel as CS boss in
May 2007. He was chairman Walter Kielholz's choice for the top
job rather than Gruebel's and there was some friction in the
boardroom over the appointment Gruebel's successor, the banker
close to Gruebel and Dougan said.
Dougan, an American reluctant to learn German -- despite
reportedly learning Japanese within a year much earlier in his
career -- returns home to the States regularly. He steered CS
safely through the credit crisis without government aid, but was
able to build on the strong position Gruebel bequeathed him.
Gruebel gave up lucrative share options at Credit Suisse to
take on the challenge of restructuring UBS and opted to forego a
bonus this year to placate Swiss taxpayers angry at shelling out
6 billion Swiss francs to save the bank before he became CEO.
Dougan meanwhile irked the Swiss public by becoming the
country's highest paid executive, pocketing around 90 million
francs ($88 million) in a year, including bonuses matured under
a five-year plan.
"Gruebel wants to leave a long lasting legacy and also to
give something back to Switzerland," the investor advisor said,
adding Dougan would eventually return to the United States for
"Dougan's not emotionally attached to Switzerland," he said.
(Editing by Sitaraman Shankar)