THE ROGUE trading scandal that hit UBS in September was a blessing in disguise. The disaster sounded the death knell for the group’s investment bank, at least as we currently know it, which has dragged on profitability for far too long. The division has lost around SFr3.5bn (now $2.4bn) since the start of 2009.
We had a lot of time for former UBS chief executive Oswald Grübel, who came out of retirement to try to rescue the bank in the aftermath of the financial crisis. It was sad he became the fall guy for the unauthorised trading incident – but it was also fundamentally necessary. He was a trader at heart and the group would never have turned its back on investment banking as long as he was at the helm.
Now new boss Sergio Ermotti is cutting large swathes of the division loose, and he is right to do so. From now on, the investment bank will focus on providing the kinds of services required by its institutional and wealthy clients. It will be less capital-intensive (which is good news considering draconian Swiss regulations) and more focused on equities, foreign exchange and advisory work.
The main worry following the rogue trading incident was that its high-net-worth wealth management clients would flee UBS in their droves. Thankfully that has not happened. In the last three months of the year, its wealth management arm pulled in net new money totalling SFr3.1bn, capping off six straight quarters of positive net inflows (see chart).
Unlike politicians and regulators, we are not claiming investment banking is inherently risky or morally wrong, just that UBS is not very good at making money from it. The bank only woke up to that fact because of the rogue trading scandal.
david.crow@cityam.com
