Stock for the Zurich-based bank gained as much as 3.8 percent in Swiss trading after UBS Chairman Peter Kurer said the bank will give its three business divisions greater autonomy to increase “strategic flexibility.”' The move has increased speculation that UBS may sell off JPMorgan Chase & Co., its securities unit.
Kurer and UBS CEO Marcel Rohner also announced plans to eliminate 5,500 jobs, including 2,600 at the securities unit, and announced it will replace its chief financial officer.
Ousted UBS CFO Marco Suter said, “The measures we announced today will not fix our reputational challenges overnight. Therefore we expect the pressure on net new money to continue in the short term.”
UBS said Suter’s replacement will be John Cryan, currently serving as head of the financial institutions group at the investment bank.
After witnessing record losses at the securities unit which led to net withdrawals from the private bank for the first time in almost eight years, Kurer’s division decision is in sharp contrast to the strategy of former UBS CEO Marcel Ospel to integrate the units. Among European banks, UBS was the most affected by the U.S. subprime mortgage market debacle. UBS has received numerous requests from investors including former president Luqman Arnold to split off the investment bank.
Of the move, “They bought themselves some time,” said Joerg de Vries- Hippen, chief investment officer for European equities at Allianz Global Investors in Frankfurt who oversees about $26 billion, including UBS stock. Vries-Hippen says that by dividing the business units, UBS is “showing that they are listening to investors but not going as far as breaking up the universal bank business model.”
UBS stock has plummeted 49% thus far this year, and is the fourth- worst performer on the Bloomberg Europe Banks and Financial Services Index.
UBS posted a second-quarter 2008 net loss of 358 million Swiss francs ($329 million), in sharp contrast to a profit of 5.55 billion francs last year. The bank doesn’t expect to see improvements in the “adverse economic and financial trends in the second half of the year, although Rohner says he expects UBS to be profitable in 2009, with the investment bank achieving an earnings goal of 4 billion pre-tax francs next year.
UBS was among the first to feel the subprime crisis when its Dillon Read Capital Management LP hedge fund lost 150 million francs in the first quarter 2007. By May of last year, UBS decided to shut down the fund.
UBS has also had its hands full with regulatory probes in the U.S. Last week UBS announced a buyback of as much as $18.6 billion of auction-rate securities and agreed to pay $150 million in fines, the largest settlement in a U.S. investigation into whether banks saddled investors with difficult-to-sell bonds. UBS set aside about $900 million in the second quarter to account for the settlement.
UBS is also under investigation in the U.S. over whether it helped clients evade paying U.S. taxes. In wake of an Internal Revenue Service summons for customer information as part of the tax investigation, UBS said it will stop servicing accounts for American clients at units that do not hold a U.S. license.