UBS has unveiled plans to downsize its operations following the completion of a joint strategic review by UBS's board of directors and group executive board.
The Swiss banking group, which pointed at adverse market conditions, the strong Swiss franc and seasonal factors for a reduction in revenues across most of its businesses, announced a headcount reduction in its investment banking division and unveiled plans to halve the unit's risk-weighted assets.
"We have chosen to substantially reduce the risk profile of the bank by exiting and downsizing businesses which are not value added to our client franchise or deliver unattractive risk-adjusted returns," said group CEO Sergio Ermotti. "[We] will exit or significantly downsize several businesses. The investment bank will work more closely with UBS's wealth management businesses and increase its emphasis on the execution, advisory and research capabilities it provides to wealth management clients."
The group's shake-up will directly affect the investment bank, which will see about CHF145bn (€118bn) of assets, weighted by risk, being stripped from the CHF300bn total, with the division exiting business-like asset securitisation and complex structured products, mainly collateralised loan obligations (CLO) and other credit based products.
A UBS spokesperson told SRP that the changes will occur primarily within the fixed income, currencies and commodities division (FICC), while equities and its retail structured products business will continue to be a focus for the group. UBS said the streamlined investment bank will continue to focus on its client-centric strategy, concentrating on advisory, capital markets and client flow, and investment solutions businesses.
The Swiss banking group also said it is planning to invest in growth areas, including the Asia-Pacific and Americas regions, the emerging markets as well as its global wealth management franchise.
Regarding funding, which includes the issuance of short-, medium- and long-term notes programmes including structured notes programmes, the group said the diversification of funding sources shifted slightly from secured funding to unsecured funding during Q3 2011 as the percentage funding contribution of repurchase agreements and securities lending declined from 14.4% to 11.3%. Deposits from its wealth management and Swiss bank business contributed CHF281bn (€227bn) of the CHF332bn (€268bn) total customer deposits. The group's outstanding money market paper issuances increased by CHF9bn (€7.2bn), mainly due to higher demand from wealth management and Swiss bank clients.
UBS also mentioned in its financial report that it recently settled a litigation case relating to the sale of these notes to UBS's customers with Hampshire Bureau of Securities for $1m, and that in April 2011, UBS entered into a settlement with US regulator Finra for the sale of these notes, according to which UBS agreed to pay a $2.5m fine and approximately $8.25m in restitution and interest to a limited number of investors in the US.