UBS charts new course amid calls for breakup

Amid continuing calls for the break-up of Switzerland’s big banks, the country’s largest financial institution is holding an investor day in Zurich Tuesday in a bid to convince the investment community of its ongoing plans to return to profitability.

UBS has remained in the red for the last four quarters after recording the worst loss in Swiss corporate history in 2008 – 21 billion francs – and the Swiss government was forced to intervene with a bailout to prevent it from going bust.

The bank has also suffered from bad publicity over  tax evasion cases in the US. Earlier this year it reached a settlement with the US government, costing 780 million dollars, which also involved handing over to Uncle Sam account details of several thousand American clients.

Oswald Grübel, the former Credit Suisse boss hired at the beginning of the year to turn UBS around, is calling for big changes, including a focus on serving super-wealthy clients.

“Our strategy represents an evolution in terms of our business portfolio but a revolution in terms of the way we will operate,” Grübel said in a statement issued on Tuesday morning.

“UBS has great businesses and distinctive strengths that we will build on,” he said.

The bank has set a goal of earning 15 billion francs in annual profit before taxes in the next three to five years, a cost-to-income ratio of 65 to 70 percent and a return on equity of 15 to 20 percent.

It is pinning its hopes on strong growth from its wealth management and Swiss bank unit and its investment bank, although it also projects 66 percent revenue growth in its Asia Pacific revenues (to 8.5 billion francs) in the same period.

The bank said its total balance sheet assets will amôunt to 1.5 trillion francs in the next three to five years.

UBS said the objectives, which include remaining the number one bank in Switzerland, are subject to “market movements and regulatory changes.”

The bank's shares traded up 1.49 percent to 17.74 francs in mid-morning trading on the Swiss stock exchange. The price has rebounded from the low of 8.20 francs set on March 9, but it remains well off the highs of more than 70 francs in 2006 and 2007.

Grübel pointed to the “tremendous progress” UBS had made in increasing its capital and positioning itself for growth.

He has slashed costs in moves that will leave the bank with 10,000 fewer staff by next year. But he acknowledged that UBS has to do more.

The bank narrowed its losses in the third quarter to 564 million francs, but the result contrasted with more rosy figures from its competitors, including Credit Suisse. Switzerland’s number two bank bounced back from record losses last year with net income of 5.9 billion francs for the first nine months of the year.

Grübel tried to turn the page on the past tax evasion scandals that have dogged UBS, talking of a bank that “performs to the highest standards and behaves with integrity and honesty.”

But while he is trying to talk up the bank’s future, some outsiders say Switzerland needs to further reduce the size of UBS and Credit Suisse to avoid facing another financial crisis.

Ingo Walter, a financial expert from New York University’s Stern School of Business, believes that the  “too big to fail” theory is bad for the economy.

Walter, a professor of finance, corporate governance and ethics, is the guest speaker Tuesday night at the first of series of lectures at the University of Geneva on the future of finance “from fragility to stability.”

The academic, who has served as a visiting professor at the universities of Zurich and Basel, has been a strong critic of American policies with regards to big banks in his own country, which he believes should be broken up.

He thinks the same is true of Swiss banks, telling the Tribune de Genève in an interview published Tuesday that if a new serious financial crisis arises “Switzerland may not have the means to respond.”

Another speaker in the finance lecture series is Philipp Hildebrand, vice-president of the Swiss National Bank, who earlier this year called on UBS and Credit Suisse to cut their debts, boost their capital and generally downsize. He is set to speak on Wednesday in the second lecture of the series about the "policy implications" of the financial crisis.

Hildebrand is set to take over as president of the SNB, which set up a fund last year to remove toxic assets - from UBS’s balance sheet last year.

The lecture series wraps up on Thursday with a presentation from Martin Hellwig, an economics professor at the University of Bonn and adviser to the German government.

Hellwig, director of the Max Planck Institute for Research on Collective Goods, has written about the “systemic interpendence” of financial institutions and how this contributed to last year’s crisis.

He will be speaking about how subprime mortgages in the US led to last year's financial meltdown.

The lectures are all scheduled to start at 6.30 pm at the Uni Dufour building, 24 rue du Général-Dufour.