UBS Group AG is again under fire from Knight Vinke Asset Management LLC, a shareholder who asserts the bank would be better off without its trading operations.
Eric Knight, founder and chief executive officer of the activist fund manager, wrote to the Swiss bank in March, questioning whether it is leveling with shareholders about the profitability of its investment bank.
He suggested the board appoint independent accountants to look into funding for the investment bank, saying UBS may be bearing a “huge burden” to support a business that may be “fundamentally unviable without substantially more capital.” The letter, dated March 27, was addressed to David Sidwell, the board’s senior independent director.
The disagreement comes just weeks before the bank’s annual meeting on May 7. Knight Vinke targets large, publicly traded companies that in the past have included HSBC Holdings Plc. It said two years ago that it held about 1 percent of UBS, which would be equivalent to about 735 million Swiss francs at Wednesday’s closing price of 19.12 francs.
“We’ve asked some very simple questions, and we want clear and unambiguous answers,” Knight said by phone from London Wednesday.
UBS dismissed his assertions as “erroneous and without merit,” noting he had already discussed his concerns with Chief Financial Officer Tom Naratil.
“We have evaluated your suggestions and have determined that none of them are superior or additive to the bank’s successful strategy,” the bank said in a letter dated April 8. The signatories were Sidwell, Chairman Axel Weber and Bill Parrett, chairman of the audit committee.
Knight fired back on April 13, saying the tone of UBS’s response makes clear that the bank is “frustrated and exasperated” at having to answer his questions. That the joint letter carried no hand signature “only reinforces” the impression that the board has “failed to grasp” the need to respond to criticism.
The three letters were published on Knight Vinke’s website.
According to a fourth letter seen by Bloomberg News, Naratil wrote separately to Knight on April 8. In that letter, which was not on the website late Wednesday, the CFO defends UBS policy, noting the bank in recent years has prioritized its wealth management business and that shareholders will vote on a 100 percent increase in ordinary dividend, or a “55 percent payout ratio,” at next month’s meeting.
UBS said on Wednesday that it doesn’t comment on interactions with individual shareholders, adding that the forum for public discussion with shareholders is the annual meeting “even when we are faced with parties who choose to selectively disclose responses we have given in private.”
The bank, which had to be bailed out by the government in 2008 and suffered a loss of $2.3 billion from a rogue trader’s actions in 2011, said in 2012 after a strategy review it would focus on wealth management and cut most debt trading businesses. Pretax profit at UBS’s investment bank beat estimates in the last three months of 2014, while the rest of the bank lagged behind expectations.
In May 2013, Knight Vinke also published a letter demanding that UBS spin off its investment bank. The firm repeated this suggestion last year, which UBS rejected as not in the best interest of shareholders.
Last year, the asset manager sold its stake of just below 1 percent in Eni SpA because of concerns about political influence on the selection of a new CEO. The Italian oil company is partly state-owned.