After reporting dismal second-quarter earnings on Tuesday, UBS announced that it would break up its three divisions into autonomous entities. Is this all just a precursor to selling off its poorly performing investment bank? Maybe, if the price is right. But mostly it allows management to seem as though they’re doing something other than presiding over the loss of billions of dollars a quarter.
(In other riveting news, it appears the CEO of UBS’ investment bank Marcel Rohner has evidently done some streamlining of his own. Rohner’s locks are noticeably shorter than they were six months ago.)
Business Week: In a break from previous strategy, the bank’s three divisions—private banking, investment banking, and asset management—will be reorganized into separate entities within the Swiss financial giant. Each will be given more autonomy over its operations, and incentives now will be linked more directly to each unit’s performance. That’s a change from before, when the high-flying wealth management division was dragged down by the underperforming investment banking unit.
“This shows that the universal banking model clearly hasn’t worked for UBS,” says Bob McDowall, European research director for financial-services consultancy Tower Group. Previously, UBS had interwoven its business units so that assets could be shared across departments. “The way it has [now] been set up is a halfway stage toward selling parts of the business.”
Indeed, rumours have abounded that UBS would offload its investment banking division after the business was left holding toxic debt (BusinessWeek.com, 10/1/07) when the credit markets imploded last year. So far, the company’s newly appointed chairman, Peter Kurer, has categorically denied attempts to spin off parts of the business. Yet when pushed by investors on Aug. 12, he said: “We haven’t received any formal offers that come close to capturing shareholder value.”
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