UBS Denies Speculation Of Investment Bank Spin-Off; Banks Win Leverage Concession

Tom Burroughes

13 January 2014

The chief executive of option,” Ermotti told the news service. “We have very defined assets and capital that we want to put at work in the investment bank, and the business model works. Therefore, there is no necessity for us to make changes,” he said.

The comments come after a period in which Switzerland’s largest bank has already shifted the focus of its overall business, making wealth management its flagship operation and reducing risk exposures for the investment banking side. New Swiss and recently introduced Basel bank capital standards are also putting pressure on such firms to keep investment banking risk exposures low.

The CEO refuted a report by Mediobanca analysts last week that UBS may dispose of the investment-banking business as higher capital requirements from regulators thwart efforts to boost returns.

Plans by UBS to boost return on equity to 15 per cent will be delayed by at least a year from the earlier target of 2015 after the Swiss regulator asked it to hold more capital for litigation risks, UBS said in October last year.

A standalone investment bank run by the unit’s current chief, Andrea Orcel, could earn a return on tangible equity of 14.4 per cent by 2017, according to Mediobanca.

“Investment banking is very strategic for us,” Ermotti said. “We have been making a lot of changes to our strategy. The strategy is working, and is one that is focused on supporting our clients in wealth management, corporate and institutionals,” he said.

Leverage

Global regulators have watered down controversial new rules aimed at reining in banks’ reliance on debt, following “ferocious industry lobbying”, the Financial Times reported. Central bankers and supervisors yesterday approved an international standard for the leverage ratio - a measure of financial strength that is considered less susceptible to being gamed by bankers - that offers some concessions to banks.

The newspaper said the the changes announced in Basel, Switzerland, will be a relief to large investment banks that had feared they would be forced to raise billions in extra capital. The modifications ease the requirements for products, such as derivatives and repurchase agreements, which make up large parts of their balance sheets.