UBS’s Orcel Says Investment Bank Revamp to Take 3-5 Years

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UBS’s Orcel Says Investment Bank Revamp Will Take Up to 5 Years
UBS AG’s investment bank aims to be a market leader in Europe, where it lost some share in recent years, Andrea Orcel said. Source: UBS AG via Bloomberg

UBS AG will need three to five years to fully transform its investment bank under a plan outlined last month, Andrea Orcel, who heads the unit, told staff at town hall-style meetings over the past two weeks, according to two people who heard him speak.

Anyone expecting the change to occur in the next couple of quarters will be disappointed, Orcel said, according to the people, who requested anonymity because the meetings were private. The Zurich-based bank will need time to show progress because it won’t be hiring expensive teams from rivals or using its balance sheet to win more business, Orcel said. A UBS official declined to comment.

UBS said last month it will exit most of the capital-intensive fixed-income businesses at the investment bank to boost pretax return on equity to more than 15 percent starting next year. Orcel, 49, was named sole head of the unit, while his former co-chief, Carsten Kengeter, 45, will wind down the debt businesses.

The investment bank is “core” to UBS, Orcel said at the meetings, adding that details of the strategy for each desk will be ironed out over the next two to three months. He stressed that the review of the investment bank is over and businesses that are kept shouldn’t fear further cuts, although some job reductions may be necessary depending on market conditions.

Retaining People

The success of delivering on the strategy and targets will depend on the people UBS can attract and retain, Orcel said. He didn’t rule out hiring individual bankers in certain areas to help the company gain market share. The bank will focus on client needs and won’t stop offering services overnight, even in areas it’s winding down, he said.

UBS’s investment bank aims to be a market leader in Europe, where it lost some share in recent years, Orcel said. The Asia-Pacific region is being viewed as a “second home market,” and UBS will defend its position there, he said.

Orcel also reaffirmed that UBS has no plans to exit the Americas or emerging markets. The firm will pursue a selective strategy in the Americas rather than trying to compete in all businesses with the U.S. banks. Emerging markets will be crucial for UBS’s growth in the future, and the bank can be a top-3 investment bank there, he said.

Orcel this month named the heads of the business units at the investment bank, which will be organized around two parts: solutions for corporate clients and wealth-management clients.

Direction ‘Clear’

“Our course of direction is clear,” Orcel said in a Nov. 5 memo which was confirmed by a UBS official. “It is now time to move forward with a future-focused investment bank that responds to industry, regulatory and economic realities and fits firmly with UBS’s ambitions.”

The corporate clients unit, which will contribute about a third of total revenue for the investment bank, will be organized regionally with David Soanes heading Europe, the Middle East and Africa, Steve Cummings in the Americas and Matthew Grounds in the Asia-Pacific region, Orcel said in the memo. Rajeev Misra, who co-headed fixed income, currencies and commodities with Roberto Hoornweg, will become global head of financial solutions, he said. Hoornweg is leaving the bank.

Investor client services, contributing two-thirds of investment-bank revenue, will be led by Mike Stewart as global head of equities, Chris Vogelgesang and George Athanasopoulos as global co-heads of foreign exchange and precious metals and Chris Murphy as global head of rates and credit, Orcel said.

There will be no changes in business areas that the bank is keeping and reorganization will mostly affect the rates and credit businesses, Orcel said at the town-hall meetings.

UBS is cutting risk-weighted assets at the fixed-income unit by 80 billion francs ($85 billion) from 110 billion francs. Of these, about 30 billion francs will come from credit businesses and 40 billion francs from rates, the bank said.

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