By Katharina Bart
ZURICH (Reuters) - UBS AG
Ermotti, a 51-year-old from Switzerland's Italian-speaking Ticino region, was appointed interim CEO in September after Oswald Gruebel quit the bank over the trading losses.
The board, which had appointed headhunters to find a replacement, said it had decided to make the appointment permanent "after it completed a comprehensive evaluation process."
Former Bundesbank president Weber, who has pushed to join the bank as quickly as possible since the scandal, will be proposed as chairman at the annual general meeting in May, a year earlier than planned.
"This strategy will be centered on our leading wealth management businesses and our position as the strongest universal bank in Switzerland," Ermotti said in a statement.
"A focused, less complex and less capital-intensive Investment Bank and our asset management business are also key elements for growing our wealth management franchise."
Weber, who sources said had seen Ermotti as a fallback option and explored other candidates, welcomed the announcement, saying in a statement he would be in Switzerland in February to exchange ideas with his new colleagues and meet major clients.
"I know Sergio Ermotti personally. I had previously met him during my time at the Bundesbank. I have also spoken to him often in the last few weeks. I welcome his appointment as UBS's Group CEO and look forward to working together with him," he said.
UBS shares were down 1.8 percent at 10.75 francs at 0959 GMT, compared with a 2.2 percent weaker European banking index <.SX7P>.
"Today's announcement is positive as it provides UBS with more certainty about its leadership and hence brings in stability. The announcement will allow Sergio Ermotti to start his leadership at UBS," said Vontobel analyst Teresa Nielsen.
The appointment represents a rapid ascent for Ermotti, a former UniCredit deputy boss who joined UBS in April. Before UniCredit, he spent most of his early career at Merrill Lynch, where he rose to co-head of global equity markets.
Charming and well-dressed, Ermotti is seen as a bridge- builder whose style contrasts with that of the gruff Gruebel who upset Swiss politicians by lobbying against tough capital rules designed to prevent another state bailout of the bank.
Ermotti's most urgent priority is to restore trust with UBS's wealthy private clients following the trading scandal and to scale back the investment bank amid a glut of new regulations for riskier activities.
"It's a good step. It was making things difficult having an interim CEO with a chairman who was sort of on his way out as well, said Florian Esterer, senior portfolio manager at Swisscanto, which holds over 9 million UBS shares.
"Ermotti's appointment puts him in a much better position to carry out the necessary restructuring at the bank and do the other things he needs to do," he said.
Ermotti has played up his Swiss roots, saying he is motivated by a desire to return his country's flagship bank to its former glory as it prepares to celebrate its 150th anniversary next year.
Near-fanatical about sports as a teen, Ermotti originally wanted to become a ski teacher, but decided against it after an apprenticeship at Corner Bank, a local Ticino lender.
Ermotti's first major task will be to present UBS's new strategy to investors on Thursday when he is widely expected to curb the investment bank, particularly fixed-income activities which soak up large sums of capital.
Ermotti said he would present new targets and details on the bank's future risk appetite on Thursday.
Investment banking head Carsten Kengeter has so far been spared in the cull following the trading scandal that claimed Gruebel as well as equities co-heads Francois Gouws and Yassine Bouhara. UBS made no mention of Kengeter in Tuesday's statement.
Swiss financial regulator FINMA and the Swiss National Bank, which manages a fund of mortgage assets offloaded by UBS as part of the Swiss government's bailout of the bank in October 2008, both declined to comment on the appointments.
(Additional reporting by Emma Thomasson and Martin de Sa'Pinto; Editing by Mike Nesbit and Erica Billingham)