ZURICH (Reuters) - UBS will separate its troubled investment bank from its prized wealth management arm, paving the way to sell the business that made it Europe’s biggest casualty of the credit crunch.
The world’s No.1 banker to the rich gave in to shareholder pressure to restructure on Tuesday, admitting there were problems keeping the two businesses integrated.
“It might be that we keep or divest or enter into joint ventures or collaboration,” Chairman Peter Kurer told journalists, adding that there were no plans yet to sell parts of the business.
As peers such as Credit Suisse drew a line under the crisis, there were further reminders of the damage the investment bank has wreaked at UBS as investment writedowns climbed a further $5 billion to top $42 billion.
It hemorrhaged 44 billion Swiss francs ($41 billion) in the second quarter as investors moved their money to rivals including smaller Swiss banks.
Net new money inflows had been 34 billion francs a year earlier but many well-heeled clients have been scared off by the steady stream of bad news out of the group’s Zurich headquarters. UBS has invested 2,000 billion francs for the world’s wealthy.
Kurer’s change of direction breaks a taboo at UBS, which has long stood by its strategy of running asset management, banking for the rich and investment banking together. These will now be run as autonomous businesses.
The move comes after the bank came under increasing pressure from investor Olivant -- headed by former UBS Chief Executive Luqman Arnold -- which has been pressing for a break-up.
“We believe UBS investment bank will be not fully owned and even potentially disposed of by UBS over the next two years,” said JP Morgan analyst Kian Abouhossein.
Investors welcomed the decision, sending UBS’s shares up initially although they later slipped and closed 2.4 percent lower at 22.62 Swiss francs as European peers also fell.
Olivant, which holds 2.78 percent of the ordinary share capital of UBS, welcomed the new strategic direction but cautioned that problems remained, not least to the bank’s once rock-solid reputation.
The Swiss bank also appointed a new finance chief, former investment banking deal broker John Cryan, who last year masterminded the break-up of ABN AMRO which sold itself to a consortium led by the Royal Bank of Scotland.
“We have learnt our lessons,” chairman Kurer told journalists and analysts later, saying the bank would remain independent as it pares back 5,500 staff.
But Kurer and Chief Executive Marcel Rohner still face widespread investor unrest. UBS’s share price has tumbled by almost two thirds to record lows since the start of the year -- twice that of European peers.
“We are still not happy with the results,” said Helmut Hipper, a fund manager at UBS shareholder Union Investment.
Hipper said that there was evidence that not only Swiss customers were ditching the bank. “A big part of the money outflows were international,” he said. “The reputational problems are hitting home internationally.”
The result in the second quarter -- a bigger-than-expected loss of 358 million francs -- was impacted by UBS’s move to buy back bonds it was accused of misselling.
UBS and U.S. rivals Citigroup and Merrill Lynch remain the three hardest hit in the financial markets turmoil.
Unlike its American rivals, however, UBS is being singled out for tough new rules from the Swiss banking watchdog that will force it to keep back considerably more capital, putting a brake on its investment bank in London and Wall Street.
UBS’s admission that the one-bank model is broken comes just a week after rivals HSBC and Barclays defended the strategy.
Additional reporting by Albert Schmieder and Steve Slater in London; Editing by Louise Ireland/Elaine Hardcastle
Our Standards: The Thomson Reuters Trust Principles.