McCann's UBS brokerage revival a race against time

NEW YORK (Reuters) - Merrill Lynch veteran Robert McCann received a warm welcome when he strode onto the stage before UBS (UBSN.VX) (UBS.N) shareholders last November, his debut as savior of the Swiss bank's bloodied U.S. brokerage unit.

McCann assured his audience that UBS Wealth Management Americas, stung by massive credit losses and a tax-fraud scandal, could survive and even thrive. He vowed that in "100 business days" he would unveil plans to revive the unit and stem the exodus of advisers and customers.

"This turnaround will be a journey, not an event," he said. "There's a lot of work to be done to change a company of this scope."

Yet long-suffering investors and UBS Chief Executive Oswald Gruebel, architect of Credit Suisse Group's turnaround earlier in the decade, may be unwilling to wait long for results.

"The problem is not whether he can do it, but can he do it quickly enough to keep people in Zurich happy," said Brad Hintz, Sanford C. Bernstein analyst and former officer of Lehman Brothers and Morgan Stanley. "How much time have they given him?"

Industry executives contend UBS' U.S. brokerage business has been badly tarnished and that the bank made clear last year that it was open to a sale. Others contend the business -- acquired with Paine Webber Group in 2000 -- should be carved out from UBS and given a different name.

"They're a good candidate for a spinoff," said Carri Degenhardt-Burke, a Jersey City, New Jersey-based recruiter. "With everything going on, a lot of people who started at PaineWebber would like to go back and distance themselves from UBS."

UBS said McCann declined to discuss his plans before a broad announcement tentatively scheduled for later this month.

PROBLEMS

Recently, UBS brokers have suffered from their association with the Swiss bank, which in 2008 and 2009 recorded an astounding $52 billion in credit losses. Regulators also forced UBS to redeem $22 billion of auction-rate securities, cash-like investments that became untradeable when markets seized up.

Just as that dust was settling, UBS suffered a bigger blow: U.S. authorities last summer accused UBS bankers of helping rich Americans hide wealth in Swiss accounts.

The episode forced UBS to turn over data on thousands of clients to U.S. tax officials. The bank faced the threat of losing its ability to remain in the United States.

The steady barrage of bad news took its toll. UBS customers withdrew 20 billion Swiss francs in the final nine months of 2009, leaving the bank with client assets of 737 billion francs at year-end.

Advisers fled to rivals or formed their own firms. Broker ranks fell by nearly 1,100 last year to around 7,000. Indeed, the unit is now smaller than the No. 4 U.S. brokerage UBS inherited when it bought New York-based Paine Webber.

"The firm went from top-notch to wrought with problems," said Andrew Bodner, a Parsippany, New Jersey, broker who left UBS in January -- after 17 years with the bank -- to form Double Diamond Investment Group.

Former Paine Webber President Joseph Grano, who ran the post-merger UBS PaineWebber and left in 2004, believes the Swiss bank's brand name in the United States is beyond repair.

"It's one thing to be over-leveraged. It's another thing to appear that you were doing something shady or illegal," Grano told Reuters. "I don't believe McCann can bring the business back to its previous heights without rebranding it PaineWebber."

In 2008 and early last year, Grano sent setters to the UBS chiefs at the time -- Marcel Ospel and later Marcel Rohner -- urging them to restore the PaineWebber name.

The 2009 letter suggested the bank sell a 60 percent stake to brokers led by Grano. The offer was not a formal one, and he received no response from UBS, said Grano, who founded and now runs private investment firm Centurion Holdings LLC.

UBS briefly considered selling the unit late in 2008, and attracted interest from potential partners like Morgan Stanley (MS.N) and Wachovia Securities, a person familiar with those early talks said.

But the Swiss bank saw only low-ball offers -- roughly half the $10.8 billion it paid for Paine Webber, the source said.

Gruebel joined in February 2009 to turn around the whole UBS group, including its hard-hit investment bank.

A spokeswoman said that "UBS' senior management has repeatedly affirmed their commitment to our Wealth Management Americas business." In other words, UBS is relying on McCann to stop the bleeding and restore growth.

RIGHT FOR THE JOB

McCann is diminutive in stature but can dominate a room. He gets high marks for leadership and intelligence, is said to understand what makes retail brokers tick, and is known to relish taking things apart and fixing them.

"He's the right man for the job," said Grano.

McCann rose through the ranks at Merrill Lynch, capturing one of Wall Street's most coveted roles as head of Merrill's famed "Thundering Herd" of brokers. He was a top candidate for the CEO job until Merrill, shocked by the first rounds of credit losses, went outside and hired John Thain.

By the end of 2008, Merrill was swallowed up by Bank of America Corp (BAC.N), and McCann bolted as soon the deal was completed last January. Ten months later, he joined UBS.

McCann quickly moved to rein in UBS' exorbitant recruiting offers, assembled a team of Merrill alumni, cut costs and culled about 100 brokers in the fourth quarter.

Last fall, he told investors the U.S. brokerage unit would not "shrink to profitability" by cutting all but its top performers. Instead, he emphasized winning business and taking advantage of rivals distracted by merger issues, such as Morgan Stanley Smith Barney and Bank of America Merrill Lynch.

McCann said the unit could generate 1 billion francs a year in pretax profit over time -- up from 32 million francs last year and a loss of 823 million francs in 2008.

Still, considering all they've been through, UBS brokers are a restless bunch. Recruiter Mindy Diamond, of Chester, New Jersey's Diamond Consultants, said many advisers are weighing their options but, for now, will wait to see what McCann does.

"Many feel hopeful," she said. "They like McCann and they want to believe in him, but they are skeptical -- big time."

(Reporting by Joe Giannone; Additional reporting by Paritosh Bansal in New York and Lisa Jucca in Zurich; editing by John Wallace)