Stricken UBS will split into three

published 15 August 2008

Troubled Swiss banking giant UBS has been forced into "announcing a radical shake-up of the business", said Katherine Griffiths in The Daily Telegraph. Europe's biggest credit-crunch casualty revealed its fourth consecutive quarterly loss of SF358m (£172m) and total write-downs since the crisis started of $43bn (£22.6bn), including $5.1bn of "legacy risk positions" relating to US subprime and other credit bets. Chief executive Marcel Rohner declined to comment on further write-downs for the three months to September, but UBS executives "privately identified the bank's remaining $4bn exposure to US monoline insurers, which underwrite bond issues, as potentially vulnerable", said the FT.

UBS "will split the group into three autonomous units after identifying weaknesses in its integrated one-bank strategy", said Dearbail Jordan in The Times. It will also nominate four new directors. That could be good news for the bank, adding "some fine talent to beef up its previously ineffective board", said Jeffrey Goldfarb of Breakingviews. But chairman Peter Kurer was clear that UBS has "no intention to sell any of our businesses this is all about flexibility".

So what next?

UBS which has seen its stock price slump by more than 60% over the past year must convince shareholders that a turnaround is on the way. An immediate task for new British finance director John Cryan will be to address the SF40bn of outflows from the bank's wealth and global asset management units, caused by the "reputational damage" of US tax evasion inquiries. But that won't be easy. Senior UBS executives "knew that some of their bankers had risked breaching American securities laws at least a year before" the US authorities began asking questions, said the FT, meaning the bank clearly has other confidence issues to face. UBS is not out of trouble yet.