The latest development comes a week after Switzerland's largest bank replaced its chief executive. Kurer will end his one-year tenure in April, with Villiger nominated to take over his post.

UBS has endured a torrid two years amid the financial crisis - losing two chairmen, two chief executives, 80 per cent of its share price and billions of francs in writedowns in that time. UBS recently announced a record SFr20 billion ($17 billion) trading loss in 2008.

Last month, the bank was also forced to pay $780 million in fines and hand over confidential client information to the United States as a result of an ongoing tax evasion investigation.

Bank Sarasin analyst Rainer Skierka believes Villiger's political and diplomatic experience was a key factor in his appointment. Villiger negotiated with the US authorities over dormant Holocaust era bank accounts and brokered a deal with the European Union on withholding tax during his reign as Swiss finance minister.

UBS is still faced with unrelenting pressure from the US to hand over more confidential client data. "This is one of the highest priorities of the bank to get solved because without any solution to political-economic issues it cannot get back on course," Skierka told swissinfo.

Guilt by association

Flagging UBS shares were boosted by the news of Villiger's appointment, rising more than 10 per cent by mid-afternoon. Share prices were similarly buoyed last week by the news that former Credit Suisse chief executive Oswald Grübel was taking over from Marcel Rohner as UBS CEO.

"It's clear that this mix of tactical business leadership together with political experience is a plus for the bank," said Skierka.

Kurer was voted in as chairman last April following the resignation of Marcel Ospel, who took a large part of the blame for the bank's failings. Many observers saw the former UBS chief counsel as a stop-gap solution until a permanent successor could be found.

"The old chairman and CEO were always seen as somehow involved in the dark past of UBS so there was enormous pressure to make a clean sheet approach," Skierka told swissinfo.

UBS vice-chairman Sergio Marchionne paid tribute to Kurer, who had reformed the bank's leadership structure, curbed bonuses, introduced more robust risk controls and reviewed strategy during his year in office.

"With humility and courage, he accepted this engagement out of a sense of duty and service to the institution. He has worked tirelessly to accomplish all the objectives he had set for himself and for the bank at the beginning of his tenure," Marchionne said in a statement.

Mixed reaction

Villiger, who held the rotating Swiss presidency twice during his ministerial reign, will be proposed as Kurer's replacement at the bank's annual general meeting of shareholders on April 15.

"I believe these to be exceptional times for UBS and Switzerland, and I recognize the difficulties that still lie ahead. This is precisely why I have accepted to chair the Board of UBS, out of a sense of service to this country and its people," Villiger said in a statement.

"We need to respond to the current challenges by relying on our core values of integrity, hard work and reliability," he added.

There was a mixed reaction from political parties to the proposed appointment of Villiger. Two of the main parties welcomed the change but the rightwing People's Party questioned the former politician and industrialist's lack of banking experience.

Ueli Leuenberger, head of the Green party, issued a warning that Villiger must tackle the thorny issue of banking secrecy - something the left wing party opposes. "If Villiger is ready to discuss banking secrecy then we will support him. If not, then we will fight him," Leuenberger said.

But Villiger told the media on Wednesday that while banking secrecy may have to evolve, it was here to stay.

The Swiss Business Federation, economiesuisse, said it supported Villiger's nomination.

swissinfo, Matthew Allen