UBS AG (UBSN) should consider splitting its investment bank from the wealth management and Swiss banking businesses, shareholder Knight Vinke Asset Management LLC said.
The “best owners” of the investment banking arm could be its own employees and management, who are the recipients of the largest part of any profit, Knight Vinke, which is based in New York, said in a letter to UBS staff and shareholders today. The firm said it owns almost one percent of UBS shares.
“We question the merits of keeping the investment bank under the same roof as the wealth management and Swiss banking businesses,” Knight Vinke said. “The investment bank has delivered a good set of results for the first quarter of 2013 but nearly destroyed UBS in 2007-09. Investment banking is a very risky business and these risks pose a serious threat to UBS’ wealth management and Swiss banking franchise.”
A spokesman for UBS wasn’t immediately available to comment on the letter.
UBS, Switzerland’s largest bank, reported first-quarter earnings that exceeded analysts’ estimates on higher revenue at the investment bank and in wealth management. Chief Executive Officer Sergio Ermotti said last year that UBS was cutting 10,000 jobs and exiting most debt-trading businesses to concentrate on money management and to boost profitability.
“It’s too early to talk about vindication or to declare victory, but I think I’m extremely pleased with the progress we made so far in executing our strategy,” Ermotti, 52, said in an interview with Bloomberg Television two days ago. “It’s working. I’m very pleased to see that clients are responding well to the strategy.”
The investment bank posted a 92 percent gain in first- quarter pretax profit to 977 million francs ($1.1 billion), UBS said on April 30. That was more than triple the average analysts’ estimate of 321 million francs. The unit had a pretax return on equity of 49.5 percent for the quarter, up from 17 percent a year earlier and exceeding a goal for the year as a whole of more than 15 percent.
Knight Vinke, led by founder Eric Knight, targets large, publicly traded companies and seeks to recruit other institutional investors to press the companies’ management to change course.
In 2007, Knight Vinke said that HSBC Holdings Plc (HSBA), Europe’s largest bank, misled investors about a new share plan payable in 2008 to reward management. It’s in dialogue with Italian energy producer Eni SpA (ENI) about group structure, according to its website.
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