— Investment bank focus shifts to client, advisory business
— Orcel hire underlines shift in investment bank focus
— UBS wants consistently profitable investment bank
— CFO says investment bank to be more people-, less-capital, intensive
— Clients still sit on cash, wait for end to EU debt crisis
(Adds CFO comment in paragraphs 3 and 10.)
By Anita Greil Of DOW JONES NEWSWIRES
ZURICH (Dow Jones)–Investment banking is still a key pillar of UBS AG’s (UBS) strategy, but the Swiss bank aims to shift its focus to client and advisory businesses, which promises more stable returns than trading shares and bonds, Chief Financial Officer Tom Naratil said Thursday.
The hiring of Andrea Orcel last week underlines the bank’s commitment to grab more market share in the business of advising clients on mergers and acquisitions and other deals, Naratil told investors at a banking conference in London.
“Andrea’s appointment is a sign of our strong commitment to our client business in the advisory area,” Naratil said. “Together, Carsten and Andrea will be responsible for implementing the strategy we have outlined for a more client focused investment bank.”
In a surprise move, UBS last week hired Orcel, a top rainmaker at Bank of America Corp., and gave him the position of co-head at its investment bank, which had more than 17,000 employees at the end of last year. Orcel–a 20-year veteran of Bank of America and Merrill Lynch, which BofA bought–will share the new role with the current head of the division, Carsten Kengeter.
Orcel’s star prowess as a deal maker was on display recently when he was the lead banker on the underwriting role Bank of America played on UniCredit’s (UCG.MI) EUR7.5 billion rights issue this year.
At UBS, Orcel will oversee corporate advisory and underwriting, while Kengeter will focus on sales and trading, according to people familiar with the matter. This clear division of labor should make sure that the co-management setup at the helm of the investment bank lasts for a while, these people added.
Kengeter still enjoys the support of the board, even as he lost his standing at the firm when a rogue-trading scandal cost UBS more than $2 billion last year. The scandal led to the resignation of Chief Executive Oswald Gruebel and a host of other senior bankers. Some shareholders have called upon Kengeter to take the consequences for the loss, which occurred under his watch.
Yet the board concluded that Kengeter was the right person to tackle the enormous task of shrinking UBS’ balance sheet and get rid of activities that absorb a disproportionate amount of capital.
Naratil underlined in his presentation that UBS aims to render its investment bank more consistently profitable, and that going forward the focus will be on allocating resources to talented bankers, rather than risky-assets that absorb a lot of capital.
“We will end the year with an investment bank that will be able to deliver more stable and predictable returns,” Naratil said. “As a result of our more balanced business mix, our cost-income ratio at the investment bank is targeted in the range of 70%-80%, reflecting an evolving business mix, which will be less capital intensive and more people intensive.”
Orcel’s appointment is testimony of this strategy. The Wall Street Journal reported that to persuade him to switch gear, UBS will grant Orcel roughly $20 million of UBS stock to cover the value of Bank of America stock he has been paid but must leave behind.
Turning to the bank’s wealth management business, Naratil said the bank was in a strong position to benefit once markets recover.
For now though, clients still prefer to hold their assets in cash.
“When we are talking to our wealth management clients, there is a communality globally among our [rich] clients that is striking–they are all looking to a sustainable improvement in Europe, and they still look for this to happen,” he said.
UBS clients hold around 27% of their wealth in cash and cash equivalents, he said. Once they become more confident to take on some risk, Naratil expects some of these assets to be used to buy bonds, shares and other securities.
– By Anita Greil, Dow Jones Newswires; +41 43 443 8044 ; firstname.lastname@example.org