UBS has announced plans to refocus on its core wealth management business and make cuts to its investment banking division. The plans follow the completion of a joint strategic review by the banks board of directors and group executive board, aimed at delivering more attractive returns to shareholders.
UBS’s new focus centers on the long-standing leadership positions of its global wealth management businesses, which together manage nearly CHF1.4 trillion in invested assets. In a drive towards growth and further expansion of the division, UBS plans to extend these leadership positions in Switzerland, Europe, Asia Pacific and the emerging markets and will continue to build on Wealth Management Americas. UBS said the Wealth Management Americas team remains confident that it can achieve an annual pre-tax profit of $1 billion.
The bank will work towards a focused, less complex investment bank division, which will carry fewer risk-weighted assets and require substantially less capital to produce sustainable returns for shareholders. Basel 3 risk-weighted assets (RWA) in the investment bank of about CHF 300 billion are targeted to be reduced by about CHF145 billion, or almost 50%, to below CHF150 billion by 2016.
The Investment Bank division includes Prime Services (the custody, clearing, administration and accounting arm), Securities Lending and Technology and Reporting.
UBSs strategy will focus on serving its core clients across wealth management, institutional, corporates, sovereigns and sponsors and investing in its leading advisory, capital markets, and client flow and solutions businesses. The bank said it will exit or significantly downsize several businesses, but did not say which ones.
For the investment bank division, the bank is targeting a cost/income ratio of 70-80% and an annual pre-tax return on attributed equity 12-17%.
Personnel in the investment bank is expected to be approximately 16,500 by the end of 2013 and 16,000 by the end of 2016, compared with approximately 18,000 currently.
For the Group, UBS will target a common equity tier 1 ratio of 13% under Basel 3. Group pro forma Basel 3 RWA of approximately CHF400 billion are targeted to be reduced to CHF290 billion by 2013 and CHF270 billion by 2016. The management team intends to propose a dividend of CHF 0.10 per share for the financial year 2011 and thereafter implement a progressive capital return program.
The banks new CEO Sergio Ermotti said: UBS is acting from a position of strength and we are adapting our strategy to deliver more attractive returns to shareholders and to reflect economic and regulatory change. We have chosen to substantially reduce the risk profile of the bank by exiting and downsizing businesses which are not value added to our client franchise or deliver unattractive risk-adjusted returns. The Board and I are convinced that this strategy plays to our strengths and is focused firmly on the needs of our clients. We will continue to invest in products and geographies where we see opportunities to grow, particularly in our wealth management businesses. We plan to generate a greater share of our profits from businesses that deliver more consistent results and, together with a reduction in risk and tighter cost management, we aim to deliver more attractive returns to our shareholders. We are confident that we can deliver a return on equity between 12% and 17% and we are determined to return capital to our shareholders.
(JDC)