UBS is taking a big step back from investment banking

Heading for higher margins in wealth management.
Heading for higher margins in wealth management.
Image: REUTERS/Michael Buholzer
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UBS has become synonymous with wealth management, recently beating out Bank of America for the title of world’s largest private bank. Meanwhile, the company’s investment banking business has taken a hit. It has been scarred both by losses during the financial crisis and the scandal over manipulating Libor, the London inter-bank lending rate. Accordingly, the bank has signalled that it’s no longer interested in leading the investment banking sector. Instead it intends to focus the remains of its investment banking division on client services.

“We have gone back and asked ourselves what is UBS to our clients?” UBS Chairman Axel Weber told an audience at the Rocky Mountain Economic Summit in Jackson Hole, Wyoming. “We’ll focus on what we’re best in, which is wealth management.” He also said that asset management was a strength for the bank.

Sources within UBS acknowledge that the investment bank’s glory days are over; the division is now considered second-class. Salaries for the company’s investment bankers have been low on an industry-wide basis during recent years. As we’ve previously reported, the bank has also scaled back its mergers and acquisitions team. Many high-profile investment bankers have departed. It also retreated from its fixed income businesses, firing 10,000 workers last year.

UBS is adjusting to these weaknesses. Its investment banking products will be pitched mostly to its client base, a source inside the bank clarified. The bank will provide advisory services, make deals and underwrite IPOs when approached by clients, but it no longer sees the importance of leading the industry in investment banking.

“In the future, with all these new [regulatory] standards, what will determine banking is banks will have to specialize. Banks will not be everything to everybody,” said Weber. ”We want to be a corporate investment bank…that type of investment bank will focus much more on the kind of investment banking that helps fund growth in the economy.” That also means focusing on clients who also have interest in the bank’s asset management services, he said.

It isn’t clear how far the changes will go. After all, UBS remains a major player in M&A and equity capital markets (underwriting IPOs) in Asia, according to Dealogic. But both those divisions rank far behind their presence elsewhere.