LONDON — UBS CEO Sergio Ermotti has defended his overhaul of Switzerland’s biggest lender as investor Knight Vinke Asset Management called for a spin-off of its investment bank.
The "best owners" of the investment bank could be its own employees and management, who receive the largest part of any profit, New York-based Knight Vinke said in a letter to staff and shareholders prior to UBS’s annual general meeting on Thursday. The firm said it owns almost 1% of UBS shares.
Mr Ermotti announced plans last year to eliminate 10,000 jobs and exit most debt-trading businesses to concentrate on money management and boost profitability. UBS last month posted first-quarter earnings that exceeded analysts’ estimates on higher revenue at the investment bank and in wealth management. Chairman Axel Weber and Mr Ermotti said on Thursday they were "optimistic" about the future for the Zurich-based lender.
"Looking back over the past 12 months, we have made significant progress in many important areas," Mr Weber said in remarks prepared for Thursday’s meeting in Zurich.
"UBS is now stronger and better-positioned than many of our competitors, and my view of the future is an optimistic one."
The investment bank posted a 92% gain in first-quarter pre-tax profit to Sf977m ($9.9bn), UBS said on Tuesday. That was more than triple the average analysts’ estimate of Sf321m. The unit had a pretax return on equity of 49.5% for the quarter, up from 17% a year earlier and exceeding a goal for the year as a whole of more than 15%.
"We question the merits of keeping the investment bank under the same roof as the wealth management and Swiss banking businesses," Knight Vinke said. "The investment bank has delivered a good set of results for the first quarter of 2013 but nearly destroyed UBS in 2007-09. Investment banking is a very risky business and these risks pose a serious threat to UBS’s wealth management and Swiss banking franchise."
Losses during the subprime crisis forced UBS to seek a government bail-out in 2008 to help it spin off toxic assets. In 2011, a $2.3bn loss from unauthorised trading led to the exit of former CEO Oswald Gruebel.
Mr Ermotti said that while last year’s results may not reflect all the progress the bank has made, "our share price paints a clear picture of everything we have achieved on an operational and strategic level".
UBS fell 1% to Sf16.43 in Zurich on Thursday. The shares have risen about 46% over the past year.
Knight Vinke, led by founder Eric Knight, targets large, publicly traded companies and seeks to recruit other institutional investors to press the companies’ management to change course. In 2007, Knight Vinke said that HSBC Holdings, Europe’s largest bank, had misled investors about a new share plan payable in 2008 to reward management.