UBS Rejigs Strategy to Find the Right Mix

By Roy C. Smith

Only UBS has announced a move radical enough to distance itself from the capital markets business, to save its crown jewel and restore shareholder value, and the stock market has begun to buy into it.

UBS was one of the first capital markets banks to feel the full weight of the financial crisis.

Its warehouse of mortgage-backed securities forced write-offs sufficient to bring about a government bailout in October 2008, together with a complete change of management. Subsequently, the government imposed draconian, “never-again” capital requirements that forced the bank to examine its aggressive global banking business model that achieved, after several large acquisitions, a prestigious sixth-ranked market share based on aggregated capital market originations and advisory assignments.

The UBS share price dropped nearly 80% from the beginning of the crisis in early 2007 until late 2009, about the same as Deutsche Bank’s and Barclays’, but much more than Credit Suisse’s.

Under new leadership since 2011, UBS made a major strategic change. It would sharply reduce its investment banking activities and their associated risk-weighted assets, concentrate on strengthening its core wealth management businesses and promise to pay out at least 50% of profits once it had shored up its balance sheet to achieve a fully applied Basel III Tier 1 ratio of 13%.

Read full article as published in Financial News

Roy Smith is the Kenneth G. Langone Professor of Entrepreneurship and Finance and a Professor of Management Practice.