The Wall Street Journal-20080118-breakingviews-com - Financial Insight- Know When It-s Time to Go- UBS Chairman Ospel Plans To Stay On- but Leaving Might Serve Company Better
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breakingviews.com / Financial Insight: Know When It's Time to Go; UBS Chairman Ospel Plans To Stay On, but Leaving Might Serve Company Better
The World Economic Forum is usually a high point on Marcel Ospel's calendar. The annual gathering of bigwigs in the Swiss mountain retreat of Davos is on the UBS AG chairman's home turf. But next week's meeting ought to be his last representing the bank.
UBS is one of the three global players worst hit by the credit crunch. The bosses of the other two, Citigroup Inc.'s Chuck Prince and Merrill Lynch & Co.'s Stan O'Neal, have been replaced. Mr. Ospel has survived.
It is true he is only chairman. Messrs. Prince and O'Neal were chief executive officers of their firms, as well. UBS did fire Peter Wuffli, its former CEO. But Mr. Ospel isn't a hands-off chairman at UBS. He is the architect of the modern UBS, running it after its merger with SBC a decade ago and then moving into the chairman's chair. That makes it harder for him to pass the buck.
What's more, the UBS chairman has an important and clearly defined role in managing the bank's risk. For example, his office acts as the board's risk committee, approving risk control standards, risk limits and certain individual transactions.
So it is hard for Mr. Ospel to wash his hands of responsibility for the $40 billion subprime bet that has forced UBS to take $14 billion in write-downs and go cap in hand to the Singapore government for a capital injection.
Mr. Ospel has said he plans to stay on. But the question isn't whether he deserves to go, but when. Some would say now. A new chairman would be free to rethink strategy, in particular whether the UBS investment-banking division should be hived off from its wealth- management arm.
Provided Mr. Ospel sets a departure date sometime this year, he can render UBS two more services.
The first is to complete the agreed capital injection, using his contacts in Singapore.
The second is to help the new CEO settle in. Marcel Rohner has his work cut out because the finance and investment-banking heads were fired along with his predecessor. Beyond that, though, Mr. Ospel shouldn't overstay his welcome.
Merrill's Shrinking Book
Former Merrill Lynch boss Stan O'Neal used to berate subordinates for not producing stellar results like those of Goldman Sachs Group. Since the losses on subprime mortgages that led to Mr. O'Neal's ouster, Merrill is starting to look a bit more like its Wall Street rival.
A former Goldman executive, John Thain, has taken Mr. O'Neal's corner office. And the Thundering Herd now is trading at 1.7 times book value, or assets less liabilities.
That is closer to Goldman's 1.9 multiple than any of its peers.
That seems unjustified. Goldman, one of few brokers that profited from the credit crunch, is attracting only a slight premium to Merrill by this measure. Another rival, Lehman Brothers Holdings Inc., trades at around 1.3 times book, as does Morgan Stanley, although both firms, to date, have reported narrower losses than has Merrill.
Why the discrepancy? Blame yesterday's unveiling of $15 billion in write-downs. That stripped off a quarter of Merrill's book value, thereby boosting its multiple. That, no doubt, is why investors wiped 10% off the stock price. But just to fall back in step with, say, Lehman, Merrill's price would have to fall more than 25% further.
Avoiding that could be tough. True, with just $4.8 billion of exposure to subprime remaining after already hefty write-downs, there shouldn't be too many more subprime-related hits. The new capital Mr. Thain has raised gives some cushion. And equities, investment banking and wealth management ticked along nicely last year.
But a recession would hurt those businesses. Meanwhile, fixed-income trading, the source of more than two-fifths of investment-banking revenue at Merrill in the first half of 2007, has been hit hard by the losses, and Mr. Thain is cutting back the capital committed to the unit. The new chief executive's actions may have calmed jittery nerves, but it would be surprising if Merrill's stock thundered ahead soon.
-- Mike Verdin and Antony Currie
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This column is by breakingviews.com, an online financial commentary site.
