Swiss bank UBS is to separate its wealth management business from investment banking, a move that could herald a spin-off or sale of the business that made it Europe's top casualty of the markets crisis.
The embattled Swiss group unveiled plans today to split wealth management from investment banking and asset management as the world's biggest banker to the rich hemmorhaged clients and admitted there were problems with its one-bank model. It said there had been net new money outflows of almost 44 billion Swiss francs (€27 billion) in the second quarter - compared with inflows of 34 billion francs a year earlier - and it racked up a further $5 billion in writedowns on investments.
This took its total bill from the markets crisis to $42 billion.
Investors welcomed the reorganisation and hoped the worst might now behind the bank, and its shares rose 1 per cent to 23.46 francs by 0832 GMT, compared to a weaker European banking sector.
Landsbanki Kepler analyst Dirk Becker said he though the worst of the crisis was over.
"As we believe there will be no further loss-making quarter, considering that the tainted assets have been drastically reduced, there should also be no danger of a further capital increase," he said.
UBS's latest writedown shows it is among banks still unearthing credit market problems, joining US rivals Citigroup and Merrill Lynch in taking more big hits in the quarter.
They remain the three hardest hit banks and investors are still worried about more subprime exposure.
A year into the credit crisis, banks have lost over $400 billion on assets tarnished by the US subprime housing crisis, but some banks, including Credit Suisse and Royal Bank of Scotland, have indicated they are through the worst.
Many of the UBS's customers - who prize low-profile stability - have grown increasingly nervous as bad news from UBS continues to make headlines.
It announced a bigger-than-expected loss of 358 million francs in the second quarter and the departure of its finance chief, Marco Suter, an ally of former chairman Marcel Ospel, who was toppled in the crisis.
Management, which has been engaged in a review of the business, signalled for the first time today that it could ditch the investment bank that landed it in trouble although it said there were no plans now to do so.
"It might be that we keep or divest or enter into joint ventures or collaboration," Chairman Peter Kurer told journalists, commenting on the business strategy. "For the time being, there are no plans to divest."
His remarks signify a major change for the bank, which has long stood by its strategy of running asset management, banking for the rich and investment banking together.
UBS has come under continued pressure from investor Olivant, however, to hive off investment banking and the news comes as UBS racked up further writedowns on battered investments and more losses.
Its admission that the universal bank model is broken comes just a week after rivals Societe Generale, HSBC and Barclays all defended the model, which has been badly bruised during the credit crunch.
UBS said today it did not expect to see any improvement in negative economic and financial market trends in the second half of the year and said it would continue to cut jobs.
Last week, it agreed to buy back almost $19 billion of bonds after New York State and others sued it for steering clients towards auction-rate securities - debt which became impossible to sell after the market froze. UBS said this would cost it $900 million.
Reuters