UBS Has No Plan to Split Off Its Investment-Banking Division

May 26, 2011, 12:25 PM EDT By Elena Logutenkova

May 26 (Bloomberg) -- UBS AG, the biggest Swiss bank, said it has no plan to split off its investment-banking division and has not entered into talks with regulators about moving the headquarters of the company outside Switzerland.

UBS sent a note to employees today affirming a “commitment” to the investment bank and adding that “there is no basis for speculation about splitting off” the unit. Separately, Chief Executive Officer Oswald Gruebel said by phone that “there are no talks with regulators about reincorporating a holding company outside of Switzerland.”

Questions have swirled around Gruebel’s intentions since he said in February that UBS may change its structure in the face of Swiss capital requirements that are tougher than elsewhere. Moving its investment bank to another jurisdiction wouldn’t allow the Zurich-based bank to escape the reach of Swiss rules as long as its headquarters are still in the country, Mark Branson, head of banking supervision at the Swiss regulator, has said.

Gruebel said in February that UBS could move some of the more capital-intensive businesses outside of Switzerland. With rules and capital requirements still in flux, the bank will evaluate options for different businesses once it becomes clear what regulators in different countries will demand, he said then.

UBS rose 9 centimes, or 0.6 percent, to 16.09 francs in Swiss trading, bringing the gain this year to 4.8 percent and valuing the company at 61.6 billion francs ($71.2 billion).

Crying Into Beer

The Wall Street Journal said earlier today the bank is planning to separate the securities division and incorporate it outside of Switzerland, a report UBS said was “speculation.”

Turning UBS’s investment bank into a standalone entity would probably drive up funding costs for the unit, which is still rebuilding after record losses in 2008. While the division posted its first annual pretax profit since 2006 last year, of 2.2 billion francs, it had the lowest revenue from trading, underwriting stock and bond sales and advising clients on mergers and acquisitions among the nine biggest investment banks, according to data compiled by Bloomberg.

Branson, head of banking supervision at the Swiss Financial Market Supervisory Authority, said in March that trading business “has always moved from place to place and always will,” adding that it’s “not an unintended consequence” of Swiss regulation that banks reconsider the future of their securities units.

Capital Rules

The Swiss government this year proposed changes to banking laws to require UBS and Credit Suisse Group AG to hold almost twice the capital required under the international Basel III rules as of 2019.

“Gruebel is very concerned about the fact that Basel III and the stringent Swiss capital requirements are going to make it difficult to earn adequate returns in certain businesses,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA. “We are not convinced the Swiss regulators would be crying into their beer if some of UBS’s investment banking activities came off the Swiss balance sheet and effectively moved away from Swiss regulation.”

Switzerland had to invest 6 billion francs in October 2008 to help UBS spin off its risky assets into a central bank fund after the company amassed the biggest losses and writedowns from the credit crisis among European lenders at the time. The proposed new rules aim to make sure that the banks’ Swiss businesses survive in a future crisis, even if the rest is wound down, the government said.

‘Migrating’ Business

“We also hear a lot about business migrating across jurisdictions,” Branson told journalists at a press conference in Bern on March 22. “Our responsibility is to set appropriate conditions for banking activities in this country. The responsibility of business leaders is to assess their options, and take the big decisions in the best interests principally of their shareholders.”

Some Swiss shareholders at the bank’s annual meeting last month criticized Gruebel, 67, and Chairman Kaspar Villiger, 70, for voicing reservations about the government’s proposal for stricter capital requirements.

“In this difficult environment, we, as a global bank, 80 percent of whose shareholders are non-Swiss, must seek the optimum structure for our business,” Villiger told shareholders.

--Editors: Frank Connelly, Steve Bailey

To contact the reporter on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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