UBS cutting investment bank seen freeing cash for investors

Reveal Value

The remaining businesses at the investment bank will include a slimmed-down advisory unit, equities trading and research, foreign exchange, government debt trading and limited credit and corporate bond trading, according to the person familiar with the bank’s plans. Capital demands by Swiss regulators, among the strictest in the world, are making it hard for UBS to compete in capital-intensive businesses such as fixed-income trading.

“Investors want UBS to reveal the value of the asset and wealth management businesses, which will make 26 percent returns on our 2013 estimates, and downsize materially the investment bank, which struggles to make single-digit returns,” said Huw van Steenis, a London-based analyst at Morgan Stanley.

Past Mistakes

The investment bank has suffered lapses that shook UBS, the world’s second-largest wealth manager. Losses during the subprime crisis forced UBS to seek a bailout from the Swiss government in 2008 to help it spin off toxic assets. Last year a $2.3 billion loss from unauthorized trading led to the exit of Gruebel, 68.

Lack of demand in the banking industry means another round of dismissals is likely on Wall Street, permanently damaging careers of some investment bankers, Connelly said.

“People will have a while on the beach,” he said. “Their business has been commoditized to the point where their brains don’t count as much. A lot of investment bankers will have to find another way to make money.”

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