Impact: UBS Change The Banking Structure

In an effort to make restructuring easier during a financial crisis, UBS plans to overhaul its legal structure, lowering capital requirements and enabling special dividend payouts. The largest financial institution in Switzerland will establish a group holding company in a share-for-share exchange offer to be implemented this year upon approval from regulators. The move will set up a Swiss subsidiary that will be home for domestic retail, corporate, as well as Swiss backed wealth management business. There will also be an intermediate holding company for U.S. activities. UBS intends to let its London business take on more risk, increasing capitalization. Lastly, UBS intends to issue funds from the holding company that can be used for a struggling subsidiary when needed.

UBS insists its plans will not “require UBS to raise additional equity capital, and are not expected to materially affect the firm’s capital-generating capability.” Shareholders that do participate in any share swap would have access to special dividends of no less than SFR 0.25. These plans have been in the works for two years. UBS’ chairman, Axel Weber, said these implementations will make it easier to separate businesses in case any one of them ran into problems. Alongside cost reductions, lower capital requirements bolster UBS’ profitability. The bank stated that it should give UBS a 15 percent equity return, though they don’t see that happening before 2016. UBS spokespersons also reiterated they look to see net cost savings of SFr 3.2 billion by 2015 and another SFr 700 million thereafter. The bank has dispensed with previous announcements made in 2012 for a sweeping overhaul that would see the cutting of 10,000 jobs.

The bank has shed about 3,500 positions in the last 18 months. Still, chief executive Sergio Ermotti says there would be a shift to focusing on the financial impact of savings as opposed to targeting staff slashing. He insists UBS was hiring in areas, such as its Asian wealth management sector. About 80 new positions have been filled. But Ermotti says UBS is unlikely to fall below its current staff level of 60,000. These changes were announced as the bank released statements of net profits at SFr 1.05 billion – SFR 0.27 per share – over the first three months of 2014. That’s a 6.7 percent bump on the SRF 988 million made during the same period in 2013. Results were driven by lower tax charges and lower costs. Both UBS’s investment branch and wealth management business, which posted a seven percent fall, saw notable declines in profit.

K. Michael Williams

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