ZURICH UBS AG may sell all or part of its hedge funds unit in a management buyout, a newspaper said on Tuesday, in what would be a new step by Switzerland's largest bank to raise cash and reduce its risk profile.
Citing unnamed financial sources, the Neue Zuercher Zeitung said a management buyout offer for Alternative & Quantitative Investments, or parts of it, was on the table. Analysts say UBS could reap about $850 million from the sale.
The expected sale follows comments by new UBS Chief Executive Oswald Gruebel last week that the world's largest wealth manager was conducting a thorough review of its businesses before deciding which ones to exit. A company spokeswoman said UBS declined to comment.
The report came a day after UBS, one of the European banks hit hardest by the credit crisis, said it was selling Brazil's Banco Pactual for about $2.5 billion to former management as part of Gruebel's radical restructuring plan.
"A&Q ticks the box in terms of size, but you need someone with the cash ready to buy," said ZKB analyst Anreas Venditti, adding a sale price equal to around 2 percent of assets under management would lead to a deal worth around 1 billion Swiss francs ($854.7 million), if it went through.
A&Q had more than $39 billion in assets under management as of January 1, 2009, and employs about 350 people worldwide.
Former Credit Suisse boss Gruebel said last week he would not refrain from cutting entire lines of business, as he announced 8,700 new job cuts.
He also said he would take immediate steps to bolster the bank's capital base after the bank's Tier 1 ratio slipped to 10 percent at the end of March from 11 percent at the end of 2008.
STRUGGLE TO RECOVER
The Swiss bank is struggling to return to profitability and rebuild its brand after massive investments in risky U.S. assets forced it to write down more than $50 billion and accept government backing.
UBS said the sale of Pactual would strengthen its Tier 1 ratio, a measure of financial strength, by approximately 60 basis points.
"I'm not sure the sale of A&Q would have such an impact on the capital ratio as the sale of Pactual will," said Venditti. "UBS's primary focus at the moment is reducing risk and the balance sheet, but obviously if you could get some cash for A&Q, a sale might be possible."
"I think it could be possible for management to get financing. More specialized providers might also be interested," said Kepler Capital markets analyst Matthias Bueeler.
A&Q's two primary lines are a multi-manager, or fund of funds, business and a single manager business run by hedge fund specialist O'Connor.
An analyst who asked not to be named said that some alternative asset managers had left UBS this year, and that this might be an indication the bank is reducing its focus on alternatives.
A&Q's total operating income declined 29 percent to 2.9 billion Swiss francs, reflecting the continued difficult environment for hedge funds, particularly in October when aggressive attempts to reduce risk and leverage put significant pressure on securities widely held by hedge funds.
The unit's multi-manager strategies posted negative performance for the quarter, but were in line with broad hedge fund indices, while O'Connor single-manager funds had good relative performance and mixed absolute performance.
"It could make sense to split off something like this if UBS only wants to concentrate on a couple of points in the value chain and leave other parts to specialist providers," Bueeler said.
"I could imagine we might see a number of deals going through in the future," he said.
($1=1.170 Swiss Franc)