Union Bank of Switzerland rips up corporate hierarchy as rich clients flee

[Naveed Yaseen]

ZURICH (August 13 2008): UBS will separate its troubled investment bank from its prized wealth management arm, paving the way to sell the business that made it Europe's biggest casualty of the credit crunch. The world's No 1 banker to the rich gave in to shareholder pressure to restructure on Tuesday, admitting there were problems keeping the two businesses integrated.

"It might be that we keep or divest or enter into joint ventures or collaboration," Chairman Peter Kurer told journalists, adding that there were no plans yet to sell parts of the business. As peers such as Credit Suisse drew a line under the crisis, there were further reminders of the damage the investment bank has wreaked at UBS as investment writedowns climbed a further $5 billion to top $42 billion. It haemorrhaged 44 billion Swiss francs ($41 billion) in the second quarter as investors moved their money to rivals including smaller Swiss banks.

Net new money inflows had been 34 billion francs a year earlier but many well-heeled clients have been scared off by the steady stream of bad news out of the group's Zurich headquarters. UBS has invested 2,000 billion francs for the world's wealthy. Kurer's change of direction breaks a taboo at UBS, which has long stood by its strategy of running asset management, banking for the rich and investment banking together. These will now be run as autonomous businesses.

The move comes after the bank came under increasing pressure from investor Olivant - headed by former UBS Chief Executive Luqman Arnold - which has been pressing for a break-up. "We believe UBS investment bank will be not fully owned and even potentially disposed of by UBS over the next two years," said J.P. Morgan analyst Kian Abouhossein.

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