UBS to hive off units after 4th quarterly loss

The bank plans to separate investment banking and wealth management operations.

UBS AG, Switzerland’s biggest bank, plans to separate its investment banking and wealth management units after a fourth straight quarterly loss caused by sub-prime-related writedowns.

UBS rose as much as 3.8 per cent in Swiss trading after Chairman Peter Kurer said the Zurich-based bank will give its three business divisions greater autonomy to increase “strategic flexibility”. The decision adds to speculation the company may jettison the securities unit, JPMorgan Chase & Co. analyst Kian Abouhossein said in a note to clients.

Kurer is abandoning his predecessor Marcel Ospel’s push to integrate the divisions after record losses at the securities unit led to net withdrawals from the private bank for the first time in almost eight years. UBS, the European bank hardest hit by the collapse of the US sub-prime mortgage market, has faced calls from investors including former President Luqman Arnold to split off the investment bank.

“They bought themselves some time,” said Joerg de Vries- Hippen, who oversees about $26 billion, including UBS stock, as chief investment officer for European equities at Allianz Global Investors in Frankfurt. “By separating the business units they are showing that they are listening to investors but not going as far as breaking up the universal bank business model.”

UBS rose 58 centimes, or 2.5 per cent, to 23.76 francs by 11:48 am The stock is down 49 per cent this year, the fourth-worst performance on the 71-company Bloomberg Europe Banks and Financial Services Index.

‘New Problems’: The bank reported a second-quarter net loss of 358 million Swiss francs ($329 million), compared with a 5.55 billion-franc profit a year before, and said it doesn’t expect the “adverse economic and financial trends” to improve in the second half. About 3.8 billion francs in tax credits cushioned the loss.

“There are constantly new problems coming up at the investment bank and this is really taking a toll on the core wealth management franchise,” said Florian Esterer, who helps oversee about $63 billion at Swisscanto Asset Management.

Rich clients at UBS’s wealth management units withdrew 17.3 billion francs more than they added in the quarter, triple the 5 billion-franc estimate of analysts. The division, which oversaw 1.84 trillion francs at the end of March, attracted an average of 37.9 billion francs in each quarter last year.

Pretax profit at the wealth management international and Switzerland unit fell 11 per cent to 1.27 billion francs, while wealth management in the US had a pretax loss of 741 million francs on provisions to settle a US probe into auction-rate securities. The investment bank had a loss of 5.23 billion francs after about $5.1 billion in writedowns. The bank said it will continue to reduce staffing, costs and risky assets.

‘Pressure’ to Continue: “The measures we announced today will not fix our reputational challenges overnight,” Chief Financial Officer Marco Suter said at a news conference. “Therefore we expect the pressure on net new money to continue in the short term.”