UBS plans to give its business units more autonomy

FWR Staff

12 August 2008

Amid crises, losses, Swiss bank calls wealth management unit its core asset. After reporting its fourth consecutive quarterly loss, financial-service giant UBS today outlined a plan to give its business units more autonomy in a bid to make it "more effective and agile in managing trends in the financial industry - including the uncertain near-term outlook for global financial markets and potential changes in regulatory capital requirements," the firm says in a press release.

Core asset

"Our review has clearly revealed the weaknesses associated with the integrated "one firm" business model," says UBS chairman Peter Kurer. "Some of these weaknesses -- such as the blurring of the true risk-reward-profile of individual businesses -- are the source of substantial risk, as we have seen in the past few months. Others have led to the creation of excessively elaborate processes and unnecessary layers of complexity."

The new-look UBS, featuring Global Wealth Management & Business Banking, the Investment Bank and Global Asset Management as autonomous divisions, "will create a spirit of transformation, clear accountability and transparency, and will allow us to optimize funding and capital usage," Kurer adds. "This re-positioning of the bank will create maximum strategic flexibility to capture the best possible opportunities for shareholder value creation in the future."

For UBS' wealth-management division -- which the bank calls its "core asset" -- the corporate-level restructuring looks a lot like business as usual.

The bank plans to "continue to invest in and develop its global wealth-management business" with a view to "strengthening both its presence in international growth markets and its leading position in Switzerland," according to a written statement released today.

Bad year

UBS, roiled by $43 billion in sub-prime-mortgage related write-downs over the past year or so, today reported a second-quarter loss of about $330 million. The Swiss bank reported a profit of $5.1 billion in the year-earlier period.

Zurich-based UBS' wealth-management clients withdrew about $16 billion in the second quarter, and pre-tax profit for the unit declined 11% to $1.2 billion. In the U.S., UBS' private-client business had a pre-tax loss of $682 million, partly on a $900-million set-aside to make good on questionable dealings in auction-rate securities.

UBS is also under investigation by the IRS on suspicion helping clients evade U.S. taxes.

And UBS has seen a rash of defections by wealth-management professionals this year, particularly in the U.K. Meanwhile two of its Zurich-based rivals, Credit Suisse and Julius Baer, which have seen net-asset inflows, have been adding wealth managers.

In fact UBS today said it plans to distribute another 2,400 pink slips across the group in addition to 5,500 job cuts it announced previously.

Financial institutions around the world have reported about $498 billion of write-downs tied to the demise of the U.S. sub-prime market, according to data compiled by Bloomberg. But no financial institution has been hit harder by the crisis than UBS, whose woes started in earnest last year when its Dillon Read Capital Management hedge fund collapsed in the wake of $125-million loss.

UBS has offices in 50 countries, with about 38% of its employees working in the Americas, 33% in Switzerland, 16% in the rest of Europe and 13% in Asia Pacific. -FWR

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