UBS sees united bank as best model

NEW YORK (Reuters) - Swiss bank UBS AG (UBSN.VX), whose massive trading losses in the past year fueled calls for shedding its investment bank business, does not intend to shed the operation, its investment banking head said in an interview on Friday.

"UBS is committed to not selling the investment bank," UBS Investment Bank Chief Executive Jerker Johansson told Reuters, hours after UBS announced plans to cut 2,000 jobs and shut down several commodities businesses. "But we are committed to an investment bank that has more autonomy and also more accountability."

Johansson believes the recent turmoil on Wall Street proves that unified commercial and investment banks are the best way to weather what he expects will be tough environment.

"I believe the benefits of being a group, especially in these turbulent markets, are substantial," Johansson said. "The events we've seen in the last couple of weeks have strengthened the case for business models of banks that combine a deposit base with a well-functioning investment banking franchise."

At the same time, UBS wants to ensure that the investment banking division does not make the kind of management and trading mistakes again that generated more than $42 billion in write-downs, Johansson said.

Johansson joined UBS from Morgan Stanley earlier this year to help turn around a division that built up massive exposure to subprime mortgages, CDOs and other assets just as financial markets started to freeze up last year.

The resulting write-offs dragged down the rest of the group and hurt the reputation of the world's largest private wealth manager.

Investors demanded UBS split off the investment bank and refocus on money management, a steady and lucrative business. In recent weeks, all of UBS's rivals have been swept up in the worsening storm.

Lehman Brothers Holdings Inc (LEHMQ.PK) collapsed into bankruptcy protection, while Merrill Lynch & Co Inc MER.N quickly agreed to be bought by Bank of America Corp (BAC.N).

The decline of Wall Street investment banks prompted Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) to change their business models and lay out plans to build out deposit-taking banks.

Suddenly the securities industry looks like JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N) and UBS.

MORE JOB CUTS

Johansson said most of the 2,000 job cuts announced Friday will hit the front-line staff of businesses in fixed income, but some cuts will be seen in most businesses. The bank is protecting its back-office operations and control staff, he said.

Combined with previously announced layoffs, UBS has now shed about 25 percent of its investment banking workforce, deeper than most rivals.

"All of our businesses are looking at a difficult year," he said. But the "client facing" merger advisory, underwriting and equities business continue to perform well, he said.

Fixed income trading, the branch of UBS responsible for the bulk of its losses, has seen the deepest cuts. UBS, which in May shut down most of its municipal securities business, is slashing to size of its real estate finance and securitization unit and exited most commodities trading.

UBS group executives have assured investors that the bank will make a profit next year, and Johansson said the investment bank intends to contribute to that turnaround.

"The reason we're taking such sharp action today is we are positioning the investment bank to be profitable next year, despite a worsening industry outlook."

The banker stopped short of promising that UBS has put its write-downs behind it.

"No. You can't responsibly say (no more losses) when you have a balance sheet of this size," Johansson said. "We have certainly reduced our most troubled exposures by well over 50 percent, but we started with a very, very big base. That means the minority that is left still may have some market-valuation (risk) associated with it."

UBS continues to shed assets that have generated losses as real estate and other markets continue to slide. In some ways, Johansson said, UBS was forced to confront changes that other banking firms are dealing with now.

"We feel we have been early," he said. "We also want to make sure we keep being aggressive in how we respond to changes in the environment."

(Editing by Jeffrey Benkoe, Brad Dorfman)