Among the many market failures in evidence these days, the market for top banking executives must rank as one of the more egregious. Rarely has the demand for bold, decisive leadership been as great as it is today. The ability of the financial sector — and the world’s major economies — to get back on its feet depends on soundly capitalized, strongly managed banks getting credit flowing freely again. And yet the supply of capable executives seems sorely lacking.
Consider the case of Citigroup. When the depth of its woes became apparent in the fall of 2007, the banking giant tapped Vikram Pandit, a veteran Morgan Stanley investment banker, to replace Charles Prince as CEO and lead a turnaround. Since then, Citi has racked up $28.5 billion worth of losses, turned to the government for $45 billion in capital injections and $301 billion in credit guarantees. Just last month it agreed to swap much of the government’s preference shares for common, strengthening its capital but diluting existing stockholders. The net result? Citi, the onetime avatar of U.S. financial might, has become a virtual penny stock; its shares briefly broke the buck early this month, down from an already depressed $33.13 when Pandit took over. And yet, surprisingly, there is little talk of a change at the top of the bank.
One could argue that Pandit was dealt a pretty poor hand. Citi’s troubles started well before his arrival, and many observers have long questioned whether the bank is governable at all. But it seems equally plausible that Citi — or the government — would have a hard time finding anyone to take his place. Bank executives are pilloried everywhere from Capitol Hill to late-night television, their compensation is scrutinized minutely by politicians and regulators, and their freedom of maneuver is increasingly constrained by political mandates to extend credit or avoid foreclosures. Who would want to step into such a maelstrom?
In Zurich the powers that be at UBS hope they have found the answer to just such a question in Oswald Gruebel. Switzerland’s biggest bank has suffered losses that rival Citi’s in size, and it, too, has been forced to turn to the government for help. In its turnaround bid, last month UBS tapped Gruebel, a veteran Swiss banker and former CEO of rival Credit Suisse, to take over from Marcel Rohner in the bank’s third big management shake-up in just 19 months.
In “Righting UBS,” beginning on page 26, Senior Editor Jo Wrighton shows how much of an uphill climb Gruebel faces by focusing on the troubles of one of the bank’s key divisions, UBS Global Asset Management. The business was struggling with poor performance before the credit crisis erupted. Now, tens of billions of dollars in credit losses have tarnished the bank’s reputation and given investors a fresh reason to pull their money out of GAM. Can Gruebel, and GAM boss John Fraser, regain the confidence of clients and staff alike? It’s a tough job, but someone has to do it.
