Of Special Interest


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18th November 2011

New UBS CEO halves investment banking - sets financial targets

Sergio Ermotti was confirmed as 'proper' CEO, as opposed to interim CEO earlier this week, just in time for the New York investor conference held on Thursday.

In the post meeting announcement UBS recognised that people wanted hard performance targets rather than words in the communique. The most significant change to its structure and the financial emphasis related to the investment bank where Basel III risk weighted assets are to be reduced from circa CHF 300bn (€242bn £207bn $326bn ¥25.1tr Y2,075bn) today to CHF 145bn.

The bank provided these financial targets:

- Basel 3 common equity tier 1 ratio: 13%
- Annual return on equity: 12-17%
- Cost / income ratio: 65-75%

Wealth Management
- Annual NNM growth rate: 3-5%
- Annual Gross margin: 95-105 bps
- Cost / income ratio: 60-70%

Wealth Management Americas
- Annual NNM growth rate: 2-4%
- Annual Gross margin: 75-85 bps
- Cost / income ratio: 80-90%

Retail & Corporate
- Annual net new business volume: 1-4%
- Annual net interest margin: 140-180 bps
- Cost / income ratio: 50-60%

Global Asset Management
- Annual NNM growth rate: 3-5%
- Annual Gross margin: 32-38 bps
- Cost / income ratio: 60-70%

Core Investment Bank
- Annual pre-tax return on attributed equity: 12-17%
- Cost / income ratio: 70-80%

UBS redefined its business in terms of the existing divisions stating:
"UBS's strategy is centered on the long-standing leadership positions of its global wealth management businesses and its universal bank in Switzerland. Together with a focused, less complex and less capital-intensive Investment Bank and a strong Global Asset Management business, UBS will drive further growth and expand its premier wealth management franchise. "

In addition to the reduction in assets within investment banking the unit is to "exit or significantly downsize several businesses. The Investment Bank will work more closely with UBS's wealth management businesses and increase its emphasis on the execution, advisory and research capabilities it provides to wealth management clients". Despite the halving of assets within the unit the bank is proposing a further cut in staff of just over 11% with numbers falling from 18,000 to around 16,000 by the end of 2016.

The bank referred to the issuance of "non-dilutive loss-absorbing debt qualifying as capital", but did not indicate the quantity.