UBS Plans to Split Off Investment Banking Unit, Base It Abroad, WSJ Says

UBS AG (UBSN) intends to split off its investment banking unit and incorporate it outside Switzerland, the Wall Street Journal reported, citing unidentified people familiar with the matter.

The unit, which was rescued by the Swiss central bank during the global financial crisis, may be made into an independent legal entity incorporated in London, New York or Singapore, the newspaper said. Chris Cockerill, a spokesman for UBS in Hong Kong, declined to comment.

Policymakers globally are introducing rules to curb risk at financial firms after bailing out banks with taxpayer funds following the collapse of Lehman Brothers Holdings Inc. in 2008. The Swiss government proposed making UBS and Credit Suisse Group AG (CSGN), the country’s two biggest banks, hold almost twice as much capital as new Basel III rules will require beginning in 2019.

The Swiss regulator hopes that UBS’s restructuring will protect the parent company and its asset management unit from being liable for losses at the investment bank, the Journal said. UBS and Credit Suisse each have assets greater than Switzerland’s economic output.

Studying Options

UBS executives are still studying their options and haven’t decided where to relocate the unit or how to structure it, the newspaper said. Local regulators may still demand that the Swiss government cover losses at UBS’s investment banking operations in other nations, the newspaper said, citing the people.

UBS rose 27 centimes, or 1.7 percent, to 16.27 francs by 10:25 a.m. in Swiss trading, bringing the gain this year to 6.1 percent.

Chief Executive Officer Oswald Gruebel said in February the bank may have to change its structure and move some capital- intensive investment-banking businesses, such as securitization, into subsidiaries in other jurisdictions with lower capital requirements. The bank currently operates through branches in other countries and holds almost all capital in Switzerland while booking 80 percent of assets elsewhere, he said at the time.

“There are no concrete plans” to that effect, Chief Financial Officer John Cryan said in February. “We do need to consider this though. I think we’re going to have to move to a regime of booking more business in fully capitalized subsidiaries, especially in the U.K., which is our European Union hub, and the U.S.”

Optimum Structure

Chairman Kaspar Villiger, a former Swiss finance minister, said at the bank’s annual shareholders’ meeting last month that UBS is a global bank and “must seek the optimum structure for our business.”

The Swiss government backs rules that will require the country’s two biggest banks to hold total capital equal to at least 19 percent of assets, weighted according to risk, starting in 2019. UBS has said that Switzerland shouldn’t rush with legislation and should limit capital requirements to 13 percent until it becomes clear what other countries are doing.

The Basel committee last year proposed raising total capital requirements to 10.5 percent of risk-weighted assets and recommended individual countries consider setting stricter rules for their biggest lenders.

UBS ratcheted down risk after taking more than $57 billion in writedowns and credit losses during the financial crisis. Gruebel, who came out of retirement to lead the bank in February 2009, has since rebuilt the investment-banking division, hiring more than 1,700 people in the past two years to replace bankers who were fired or had left. He appointed Carsten Kengeter, 44, a former Goldman Sachs banker, as sole head of the investment bank last November.

Gruebel, 67, told employees in a memo last week that UBS remains committed to keeping and investing in its investment bank in the U.S., after at least 50 departures from the unit since 2009.

In some cases the staff losses were “regrettable, but in others they have been the right decision for the bank,” Gruebel said in the memo.

To contact the editor responsible for this story: Alan Purkiss at apurkiss@bloomberg.net

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