BERN, Switzerland (AP) — UBS AG, already wincing from massive write-downs caused by the subprime crisis, has taken another blow as a former CEO is pushing the Swiss bank to separate its private client operations from the stumbling investment unit.
A shareholder group cheered the proposal from the bank’s former CEO Luqman Arnold and investors agreed, sending its stock higher yesterday.
UBS has reported write-downs of $37.4 billion for the past nine months — so far the largest reported by any bank with exposure to U.S. defaults on risky mortgages. It expects first-quarter losses of $12.1 billion and said it would seek $15.1 billion in new capital.
Mr. Arnold, who was dismissed as CEO in 2001 in what was seen as a power struggle, said that may not be enough.
“We are not convinced that the ’one bank’ integrated business model that has served UBS well in the past will survive the damage inflicted by the proprietary trading losses and write-downs,” Mr. Arnold said in a letter dated Thursday from his investment firm Olivant Ltd.
UBS spokeswoman Tatjana Domke confirmed that the bank had received the letter, and said it would respond in due course. It was addressed to incoming UBS Vice Chairman Sergio Marchionne, who is also CEO of Fiat Group S.p.A.
Shares in UBS rose 3.3 percent to $33.06. Mr. Arnold’s proposal will likely draw support from some investors who have said UBS should consider splitting off the private client bank from the investment operations, which they blame for moving the traditionally conservative bank into trading high-risk mortgage securities.
UBS, Switzerland’s largest bank, said it sees losses and write-downs of approximately $19 billion in the first quarter on U.S. real estate and related credit positions.
Officials have stuck to the bank’s integrated model, which can offset losses in one unit with profits in others.
Mr. Arnold noted that Olivant owns more than 0.7 percent of UBS shares, and said it would favor greater separation and independence of the bank’s major units.
He left open the possibility that the investment bank could eventually be sold, but he said that “the businesses, albeit more independent, would still remain, at least for the time being, under one roof and owned by one set of shareholders.”
“Arnold’s logic for breaking up the bank cannot be faulted and events of the last year just confirm that,” said Peter Thorne, an analyst with independent brokerage Helvea.
“The supposed synergies of having investment banking and private banking in one company have been grossly overstated by the previous UBS management,” he said.
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