Orcel Facing Hurricanes Remodeling UBS on Old Wall St

Two years ago, after UBS AG (UBSN) decided to shrink its investment bank, Andrea Orcel told employees they had an opportunity to create a firm based on a model that vanished in the late 1990s.

That was an era before investment banks such as Merrill Lynch & Co. and Goldman Sachs Group Inc. (GS) ramped up borrowing to inflate returns. Orcel, who was hired to co-lead the UBS securities unit in 2012 and became sole head four months later, said a business that made money purely by connecting buyers and sellers and providing advice could work again, according to a person who attended the meeting and asked not to be identified.

In trying to rewire UBSs securities unit into an old-school Wall Street firm, Orcel is making a virtue of necessity. Recent history left him and Chief Executive Officer Sergio Ermotti, 54, little choice but to work with lower leverage, fewer people and less capital. They have eliminated almost 5,000 jobs, cut assets by two-thirds, curtailed capital-hungry bond-trading businesses and imposed an approach that relies more on relationships than providing financing to win business.

What I would very much like to create is a real investment bank, the kind that there arent anymore, Orcel, a 51-year-old former Merrill Lynch dealmaker, said in an interview this month. Are we there yet? No, were not there.

There are successes: Return on equity rose to the highest among the worlds nine largest investment banks in the first half. Revenue at the underwriting and advisory unit in the first nine months was 2.5 billion Swiss francs ($2.6 billion), 21 percent higher than two years earlier, while the trading businesses boosted sales 13 percent to 3.9 billion francs.

Theres also more to do, such as stamping out the misconduct that forced Switzerlands largest bank to set aside $1.7 billion for legal matters in the third quarter. Last week it was ordered to pay almost $800 million for attempting to rig currency markets. UBS will have to replenish a talent pool depleted by years of turmoil, recapture market share in equities, boost revenue from mergers advice and underwriting and reinvent its fixed-income business, all while maintaining strict limits on capital and costs, current and former employees said.

UBS has been successful in shrinking the balance sheet and refocusing the business, said Guy de Blonay, who manages about $720 million, including UBS shares, at Jupiter Asset Management Ltd. in London. Now, the investment bank needs to resolve outstanding litigation, reduce costs, establish a track record of sustainable earnings across the cycle and avoid large losses, even in difficult times.

UBS, based in Zurich, lost 57 billion francs during the last financial crisis, forcing it into a state rescue and Swiss regulators to impose among the toughest banking requirements in the world. A $2.3 billion loss in 2011 from unauthorized trading fueled doubts about risk controls.

Sitting in a conference room at the investment banks Swiss headquarters in Opfikon, outside Zurich, Orcel said the business has faced hurricanes, not headwinds, over the past few years. Immaculately groomed, with silvering hair and dark lines under his eyes, he spoke about UBSs plans for more than an hour, scarcely pausing for breath.

Hell need all the energy he can muster to satisfy investors such as Knight Vinke Asset Management LLC, which urged UBSs board as recently as August to spin off the investment bank to reduce risk. David Trenchard, a vice chairman of New York-based Knight Vinke, declined to comment for this article.

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Orcel Facing Hurricanes Remodeling UBS on Old Wall St