UBS cutting investment bank seen freeing cash for investors

Facing Reality

“I think the market will welcome UBS facing up to the reality that it is not a market leader in fixed income,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA.

The bank’s executive board, headed by Ermotti, met in New York last week to consider the reorganization, people familiar with the discussions said. The board of directors is headed by Chairman Axel Weber. Serge Steiner, a spokesman for UBS, declined to comment.

An announcement may come when UBS reports third-quarter earnings tomorrow, the person said. The company may report net income of 487.6 million francs, down from 1.02 billion francs a year earlier, according to the average estimate of nine analysts surveyed by Bloomberg.

Many of the reductions will occur in the trading businesses overseen by investment-bank co-head Carsten Kengeter and probably will occur over several quarters, said the person familiar with the bank’s plans.

Much of the fixed-income operations will be put into a new unit that will hold assets to be wound down over time, and Kengeter will probably give up his current role to head that unit, the person said.

Roberto Hoornweg

Roberto Hoornweg, who co-leads the firm’s fixed income, currencies and commodities unit with Rajeev Misra, is likely to leave, two people familiar with the matter said today. Misra will probably remain at UBS, the people said. Hoornweg is responsible for foreign exchange, money market and interest-rate sales and trading, as well as commodities and the investment bank’s treasury trading activities.

The details of his departure haven’t yet been finalized, one of the people said. A UBS official in London declined to comment, as did Hoornweg when reached on his mobile phone.

While UBS’s leading position in foreign exchange “supports an ‘invest and grow’ strategy, the credit flow and structured rates businesses appear most at risk,” Citigroup Inc. analysts led by Kinner Lakhani, said in a note today. “Assuming a wholesale exit from credit, emerging markets and rates franchises could suggest a potential further ‘wind-down’ of 70 billion francs to 75 billion francs” of risk-weighted assets and the release of 11 billion francs in capital.

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