UBS To Split Investment And Wealth Management Businesses

by Phillip Morton, Investors Offshore.com

14 August 2008

After reporting a second quarter loss of CHF358mn (USD330mn) on Tuesday, embattled Swiss bank UBS AG has announced that it intends to streamline the company by splitting its investment and wealth management divisions.

The decision has come following a detailed review of the banks's strategy by the UBS Board of Directors and the Group CEO, which has concluded that there is a need for changes to its strategic direction and a comprehensive program to re-engineer its business.

UBS will now operate as a Group with autonomous business divisions. The bank claims that this move will make UBS 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 bank also believes that the new business model will enhance the incentive for each business division to be successful on its own merits, without relying on capital and funding rate cross-subsidies from the other businesses.

"Our review has clearly revealed the weaknesses associated with the integrated 'one firm' business model. 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," explained Peter Kurer, Chairman of UBS.

"The new structure will create a spirit of transformation, clear accountability and transparency, and will allow us to optimize funding and capital usage. This repositioning of the Bank will create maximum strategic flexibility to capture the best possible opportunities for shareholder value creation in the future," he added.

Marcel Rohner, CEO of UBS, observed: "A lot has already been achieved in the repositioning of the Investment Bank. We have substantially reduced our risk exposures, balance sheet, costs and personnel, made changes in our group governance model and initiated remediation measures. I am determined to make the management of UBS more effective. These fundamental changes to the way we run our businesses will now increase the effectiveness of our management structure and processes, and of the way our businesses interact."

UBS confirmed that it will continue to develop the platform and reach of Global Wealth Management & Business Banking. This includes the expansion of its global presence in international wealth management growth markets. UBS's leading position in Switzerland, both as a wealth manager and as the largest retail bank, will remain a cornerstone of the strategy and of sustainable profit growth, the bank said.

Meanwhile, the Investment Bank will continue its repositioning towards client-driven growth, combined with a further reduction of its balance sheet and risk positions, the bank announced. Each business line – equities, investment banking and fixed income, currencies and commodities – will now be measured by individual return on capital targets and a new compensation plan will balance risk and reward.

UBS expects the change program to be completed by the end of 2009.

Peter Kurer, Chairman of UBS, concluded: "We are satisfied that we have found the right strategic framework for the management and development of our businesses. This repositioning will allow UBS to move quickly in seizing opportunities to strengthen each business – through collaborations, joint ventures or other forms of combination – as financial markets recover to normality with the objective of delivering the highest possible value to shareholders while preserving the core asset of UBS, its global wealth management business."

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