UBS and the case for being less of an investment bank

David Hellier
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Since first arriving at UBS and then more so after being promoted to become the head of its investment bank, the famed deal-maker Andrea Orcel has been doing his outmost to reassure colleagues that he is intent on keeping the investment banking flame alive.

The rogue trading scandal and the bank’s involvement in the Libor interest rate manipulation scandal have both caused management to think long and hard about future direction and indeed the bank’s own Accelerate strategy, outlined last October, envisages traditional investment bank activities contributing a reduced share of overall revenues.

But that may not prevent Orcel from feeling more than a bit peeved by the title of a recent research note from an analyst working for his former employers, Bank of America Merrill Lynch. The note implores investors to Stop Thinking of UBS as an investment bank.

The note itself is positive from an investment point of view, with research analyst Derek de Vries arguing that by 2015, 80 per cent of UBS’s earnings will be from high price earnings multiple businesses as it focuses more on its wealth management activities and private banking services. De Vries says the “market is missing the significant improvement in UBS’s earnings mix.”

Since joining UBS last year Orcel has used his contacts and charm to win a place at the table on several deals, including the IPO of Santander Mexico. The bank is also performing well in the ultra competitive business of block trades in Europe and its mergers and acquisitions activity as well as involvement in debt capital markets deals looks healthy enough.

Broadly the emphasis is shifting towards relationship driven advisory work rather than balance-sheet, with UBS no longer prepared to commit itself to big capital risks on deals, either equity or debt-linked.

All of this seems sensible enough stuff and it is one the financial markets are warming to.

But the trick for Orcel will be in motivating good people to work for and join an investment bank business at a group that no longer considers itself primarily an investment bank. Having his former bank remind the world of that is probably something he could have done without.

Goldman Sachs and JP Morgan, bank advisers to KPN, the Dutch telecoms group, face a daunting challenge in the weeks ahead as they try to persuade investors to back a life-saving €4bn rights issue.

News of the capital-raising was first announced weeks ago, before it was clear whether Carlos Slim’s American Movil, which owns 28 per cent of the stock, would back the issue.

Now that he has committed, KPN’s shares, which were already sliding, have come off further, down from around €4 to €2.60. The market, already fearing an over-supply of KPN stock, has now written off the chances of a Slim takeover, which had hitherto supported the shares.

Bankers are currently referring to KPN as a Kick in the Proverbial Nuts. Ouch.