For UBS and other banks, breaking up is hard to do

NEW YORK (Reuters) - UBS AG (UBSN.VX) is looking at separating its prized wealth management arm from its investment bank, but its U.S. rivals' experience shows splitting up the company into parts could be very difficult indeed.

Critics have called for banks like Citigroup (C.N) to be split up for years, claiming their many separate businesses are too difficult to manage well.

But dividing a bank is tricky because the individual units may need more capital separately than they do together. A bank's units can provide stability to one another, with some earning money while others lose money -- precisely the reason former Citi CEO Sanford Weill cited when he tried to craft the bank into a "financial supermarket."

And selling a unit is difficult given the low prices these assets would likely fetch now, analysts said.

"It's the wrong time to do it because all the assets are so depressed," said William Smith, founder of Smith Asset Management, who has long argued for the breakup of Citigroup's various businesses.

UBS said on Tuesday it will separate its troubled investment bank from its wealth management arm, and run the two units as autonomous businesses. Selling one of its main businesses is possible, the company said.

U.S. banks have been able to sell off units outside their main businesses, but so far the ones that have looked at splitting into pieces have decided not to.

When Vikram Pandit became chief executive of Citigroup in December, he told investors all options were on the table for the embattled firm and he did not discount the possibility of spinning off or selling the bank's various businesses.

In May, however, he presented investors with a turnaround plan for the firm that committed to keeping all of Citi's businesses with the aim of squeezing more revenue from individual products by selling them across multiple units.

Meanwhile, John Thain, who was named chief executive of Merrill Lynch MER.N late last year, discussed selling some of Merrill's crown jewels in June, when he said the company would consider selling its nearly 50 percent stake in asset manager BlackRock Inc (BLK.N) or its 20 percent stake in financial data and media company Bloomberg.

But BlackRock is essentially one of Merrill's main businesses. The investment bank sold its investment management unit to BlackRock in 2006 in exchange for a stake in the asset management company.

In June, Thain said that BlackRock was a strategically important asset to Merrill Lynch, while Bloomberg was "just a very good investment."

Merrill last month sold its Bloomberg stake, but decided to hold on to its BlackRock stake.

Other Wall Street firms seem to be approaching their difficulties in the same way, selling off small businesses while keeping their main ones. Morgan Stanley (MS.N) has sold its Spanish wealth management business and half its stake in the spun off index firm MSCI. Citi has agreed to sell off several businesses, including its German consumer banking unit.

Breaking up is hard to do, and the fact that banks are evidently considering the move at all shows just how desperate they are, analysts said.

"It's a sign of the times," said Robert Lutts, chief investment officer at Cabot Money Management. "When things get difficult, people do things that they would not normally do."

(Editing by Phil Berlowitz)