GIC supported UBS ex-CEO Gruebel's strategic plan - source

SINGAPORE Tue Sep 27, 2011 4:00pm IST

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SINGAPORE (Reuters) - UBS AG's largest shareholder supported former chief executive Oswald Gruebel's strategic plan for the bank and believed he could have stayed on to manage it through the latest crisis, a source with direct knowledge of the matter said on Tuesday.

The faith of Government of Singapore Investment Corp Pte Ltd, the bigger of the city-state's two sovereign wealth funds, in UBS's departed CEO underscores the complexity of Gruebel's resignation and reveals the extent to which a variety of internal and external factors, including political pressure, played a role in his exit.

Gruebel resigned over the weekend as UBS management grappled with a rogue trading scandal that cost the bank $2.3 billion and prepared a plan to steady the struggling bank.

GIC's support of Gruebel until the very end also shows that while his leaving may have satisfied some shareholders, it hardly reassured the Singapore fund, which owns 6.4 percent of the bank.

"GIC believed he had good plans," said the source, who added that GIC was concerned about what the leadership changes would do to the bank's future strategy.

GIC declined to comment. UBS was not immediately able to be reached.

Gruebel met with GIC's chief investment officer Ng Kok Song last week when he was in Singapore for the meeting of the executive board and the board of directors, the source said. The 67-year-old Gruebel resigned on Saturday saying he was taking the blame for the scandal.

"Gruebel succumbed to Swiss national pressure," added the source, who was not authorised to speak publicly about the matter and therefore did not want to be identified.

POLITICAL PRESSURE

The pressure would have made it difficult for Gruebel to implement his plans, the source said.

The Swiss parliament had piled pressure on the nation's biggest banks in the wake the rogue trading, as a center-left party pushed for a ban on risky investment banking and a plan to raise capital requirements passed the lower house.

Social Democrat lawmaker Susanne Leutenegger Oberholzer narrowly failed to get enough support for her proposal to reopen debate on tough new capital measures for UBS and Credit Suisse so that a ban on investment banking could be added.

The source did not provide details on Gruebel's strategy, but sources had told Reuters last week that the former CEO had pushed for an 'integrated bank" model which meant investment bank would be part of the business.

The source said the investment bank could help facilitate the core wealth management business of the Swiss bank.

GIC's UBS investment is currently worth around 2.5 billion Swiss francs ($2.86 billion).

The sovereign wealth fund has lost about 77 percent of its 11 billion Swiss franc investment in UBS made at the end of 2007, excluding dividends, according to a Reuters calculation based on UBS filings.

The Singapore sovereign wealth fund, ranked as the world's eighth-largest with an estimated $300 billion in assets, has been reducing its exposure to the developed market due to long-term concerns about the U.S. and European fiscal deficits.

GIC cut its holdings of shares in developed markets to 34 percent of its portfolio from 41 percent in the fiscal year to the end of March, its annual report shows

GIC also owns 3.86 percent of Citigroup even after selling half its stake in the U.S. bank in 2009. GIC officials will meet with Citigroup CEO Vikram Pandit later this week as the U.S. bank holds its board meeting in the city-state.

The source reiterated GIC's recent stance that UBS was a well-capitalised bank with a strong private wealth management business, a signal that the sovereign investor was not preparing to sell out of its holding.

GIC is not interested in a seat on the UBS board, the source said, adding it is not a passive investor and can voice its views to the UBS management.

"The board seat is a distraction," the source said.

(Editing by Michael Flaherty, Chris Lewis and Muralikumar Anantharaman)

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