UBS universal bank model breaks, rivals defiant
UBS’s (UBSN.VX: Quote, Profile, Research, Stock Buzz) blunt admission that its universal banking model blurs risk, adds complexity and can eat up capital will put pressure on rivals with a similar strategy to reassess their future.
But it was more UBS’s failure to put sufficient risk controls in place that did the damage, than shortcomings of the model, which has also been adopted by the likes of Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz), HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) and SocGen (SOGN.PA: Quote, Profile, Research, Stock Buzz).
“It failed for them,” said David Williams, bank analyst at Fox-Pitt, Kelton. “They (UBS) didn’t have the necessary safeguards, protections and strategic oversight of what they were doing, and that’s required them to go for a much more effective separation of the business units.”
UBS — Europe’s biggest casualty of the credit crunch — said on Tuesday it will separate its wealth management arm from its troubled investment bank, which analysts expect to lead to a spin-off or sale of the latter http://abc-cashadvance.com.
“Our review has clearly revealed the weaknesses associated with the integrated “one firm” business model,” said Peter Kurer, UBS chairman.
The universal model spans retail and investment banking and can include insurance, fund management and other areas. But big investment banking losses during the credit crunch of the past year have prompted calls for a rethink.
Kurer admitted the model blurred the risk-reward profile of individual business.
Cheap funding provided by lavish income from its wealth management arm and a lack of oversight allowed UBS’s investment bank to build up huge trading positions, which left it nursing writedowns of $42 billion when they soured.
Filed under: management by TheDoor