LONDON/ZURICH (Reuters) - Activist investor Knight Vinke said UBS UBSG.VX needs to “radically” shrink and should look at spinning off or merging its investment bank, reviving its two-year criticism of the Swiss bank.
Knight Vinke says UBS’s investment bank is unviable and should be spun off so the bank can focus on its wealth and asset management businesses.
Two letters sent to the bank in recent weeks by Knight Vinke Chief Executive Eric Knight said the investment bank continued to receive “a huge funding subsidy” from the rest of the bank.
"This leads us to the conclusion that UBS needs to be radically streamlined, just as many of its global universal banking peers are doing – with a new strategy and possibly under new management – or absorbed into an organization that is better able to take on this task," Knight said in a letter dated March 27, which it published on its website this week. (knightvinke.com/letters/)
In a follow up letter dated April 13 Knight said his questions about how the investment bank was funded had not been answered by the bank.
Knight Vinke published a response from UBS dated April 8, which said the bank’s senior independent director and audit committee had reviewed the assertions and “determined them to be erroneous and without merit”.
“We have evaluated your suggestions and have determined that none of them are superior or additive to the bank’s successful strategy,” it added.
A spokesman for UBS said it did not comment on interactions with individual shareholders “even when we are faced with parties who choose to selectively disclose responses we have given in private”.
Knight, who has taken about a 1 percent stake, told Reuters last year he believed UBS would eventually follow his advice and split off its investment bank.
UBS’s shares are up more than 15 percent since Knight Vinke went public with its campaign, partly following the bank’s move to axe much of the investment bank’s trading activity.
Knight’s March 27 letter said UBS businesses still bore “a huge burden” to support the investment bank and investors and regulators may have been misled over the true cost of funding and capital for the business.
“The IB may, in fact, be worthless once its true capital requirements are taken into account,” the letter said.
Knight told UBS he would be willing to join its board, which he said “may be too dependent on the views of current or former investment banking professionals”.
UBS will hold its shareholder meeting on May 7.
Reporting by Steve Slater in London and Joshua Franklin in Zurich; editing by Susan Thomas