UBS chief waits for market crisis to play out

Marcel Rohner made his name as UBS’s risk specialist. So, with financial markets in turmoil, the 42-year-old econometrician’s comments on the group’s results were always going to find a keen audience.

Mr Rohner’s new mantle of chief executive, acquired following last month’s surprise departure of Peter Wuffli, gave his comments added weight.

On Tuesday, amid volatile markets and investors who have been unsettled by slip-ups at what was one of the world’s most predictable banks, Mr Rohner faced a baptism of fire.

Many analysts focused on the potential for more fallout from the group’s decision in May to close Dillon Reed Capital Management, its in-house hedge fund.

Others concentrated on rising costs in investment banking, stemming from the group’s ambitions to challenge Wall Street’s finest. Add to that curiosity about Mr Rohner’s potential market insights, and the attentiveness at Tuesday’s results conference was palpable.

On markets, Mr Rohner, who served as chief risk officer of the former Swiss Bank Corporation and then UBS, pulled no punches.

Compared with the greater confidence of rivals such as Credit Suisse and Deutsche Bank, he predicted “very weak” trading results in the current quarter if markets remained in turmoil, prompting lower earnings in the second half.

“It is clear that it will be a while until the crisis plays through fully. The question is whether everything is already priced in. That depends on what further news may emerge about the US economy,” he told the Financial Times after the presentation.

That the crisis has confirmed fears at UBS – and vindicated its caution towards large scale “covenant lite” lending – has come as scant consolation.

The scale and scope of the crisis remains impenetrable given the nature of the products concerned. However, Mr Rohner is certain the sell-off will have consequences. “Let’s say there has been a certain recovery of previously relaxed principles that might last for a while,” he said.

Nevertheless, rather than damage UBS’s profitability further, he suggests the new conditions could create opportunities, given the quality of the bank’s risk controls and its focus on exposure. “Our understanding about exposure was never as good as it is now,” he said.

Volatile markets will create chances for a well capitalised, conservative, group such as UBS, Mr Rohner said. The potential is less in acquisitions – although they cannot be ruled out – than in shorter-term trading opportunities.

“There will be many depressed or mispriced assets and we will be able to benefit.”

Talk of opportunism may sound misplaced, given the bank’s own recent upsets with DRCM. But Mr Rohner is confident that chapter is now closed.

The damage has come in restructuring charges, heralded in May and now quantified at SFr348m ($287m) before tax, to cover the accounting treatment for salaries and for administrative expenses, and in negative revenues.

More than 120 of the operation’s 230 staff have been reintegrated into the bank’s trading room, marking a significant boost in net numbers from the 50-odd who followed John Costas into DRCM two years ago.

In the US, meanwhile, although growth remains a strategic objective, Mr Rohner noted that “the tactics involved in executing will continue to be adapted to varying market conditions” – a slight, but important, adjustment in wording from the past.

Mr Rohner said the subtle difference was partly a reflection of the current, more cautious, mood in financial markets.

But it may also be a small, but telling, first indication of how UBS’s new chief executive, reacting to the mood of its board, is making his mark.

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