By Jason Simpkins
UBS AG (UBS) plans to separate its investment banking and wealth management units after reporting a fourth straight quarter of widening losses and mounting subprime-related write-downs.
UBS announced yesterday (Tuesday) that it lost $329 million in the second quarter after taking another $5.1 billion hit in write-downs on subprime assets. That compares with a profit of $5.12 billion a year ago. The bank has written down a total $42.5 billion in the past 12 months.
After announcing its results, UBS said it would “reposition” itself to “allow maximum strategic flexibility in its future development.” The restructuring effort includes separating the bank’s business divisions into three autonomous units, as well as a management shakeup. Four new members will be added to the bank’s Board of Directors, and Markus Diethelm and John Cryan will take over as Group General Counsel and Group Chief Financial Officer.
"We are delighted that Markus and John will join our Group Executive Board, and, when it is formed, the new Executive Committee, filling these critical positions with two high-caliber senior managers," said Chief Executive Officer Marcel Rohner.
Both the turnover in management and abandonment of the single-bank model are widely seen as moves to appease investors who are growing impatient with UBS’ continued losses. However, analysts remain divided over whether or not the bank will go so far as to jettison its securities unit.
“We believe that UBS investment bank will be not fully owned and even potentially disposed of by UBS over the next two years,” said JPMorgan Chase & Co. (JPM) analyst Kian Abouhossein.
However, the UBS Chairman Peter Kurer told journalists on a conference call that the bank has “no specific plans to dispose of any business unit at this time,” leading others to speculate that the bank is merely trying to pacify its raucous investors.
“They bought themselves some time,” said Joerg de Vries-Hippen, who oversees about $26 billion, including UBS stock, as chief investment officer for European equities at Allianz Global Investors (ADR: AZ), told Bloomberg News. “By separating the business units they are showing that they are listening to investors but not going as far as breaking up the universal bank business model.”
It’s not just investors the bank is worried about losing, either. UBS lost 140 client advisors from management units in the second quarter, Bloomberg reported.
“Talent in private banking is rushing out the door to competitors who are taking advantage of the bank's difficult situation,” said Bernhard Bauhofer, the founder of Wollerau, Switzerland-based consulting firm Sparring Partners GmbH.
Clients have followed many of those executives out the door, as the company said there were net new money outflows of $41 billion during the second quarter.
“A big part of the money outflows were international,” Helmut Hipper, a fund manager at Union Investment told Reuters. “The reputational problems are hitting home internationally.”
An investigation by the Internal Revenue Service has also detracted from UBS’ credibility. The IRS has issued a summons for customer information, alleging the bank helped clients evade U.S. taxes. UBS said it would stop servicing American accounts, and the Swiss Finance Ministry is evaluating whether or not the bank should offer any further compliance.
Also, New York State Attorney General Andrew Cuomo has brought a multi-billion lawsuit against UBS, accusing the Swiss banking giant of pushing billions of dollars in auction-rate securities onto ordinary investors as the market collapsed earlier this year.
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