Is UBS Considering A Spin Off Of Its Investment Bank?

With new regulations, capital requirements, lawsuits and scandals popping up, it is no surprise that the big banks have been doing some soul searching. ‘Derisking’ has become in vogue (or mandatory) and in response units have been shed and trading desks cut. Mediobanca analyst Chris Wheeler thinks UBS (UBS) might have something much bigger in the works though due to tougher Swiss capital regulations: a spinoff of its investment bank.

According to Mr. Wheeler, UBS has been ‘dusting off plans…for disposing of the investment bank.’ In addition to regulatory reasons, ‘the earnings trajectory of the business’ will also be a factor in shedding the unit. Believing a sale to be unfeasible due to the likely astronomical price tag, he suggests a spin off of the unit to shareholders and a revival of the old SG Warburg name for the business. SG Warburg disappeared when UBS merged with the Swiss Bank Corp back in 1998.

For the past few years, UBS has been focusing heavily on building up its wealth management and has seen some nice growth in that area. At the same time, it has been cutting down on its investment activities by shedding units and jobs. While a breakup has been talked about before, it was most recently discussed when Knight Vinke Asset Management sent an open letter suggesting the move to UBS’ board in early 2013. According to Knight Vinke, the unit poses a serious risk to UBS’ other businesses so a breakup would make sense. Not everyone agreed with their analysis though and the bank has and continues to insist that its i-bank is a part of its future. In fact, CEO Sergio Ermotti told Bloomberg yesterday that ‘we are not considering that option’ and that “investment banking is very strategic for us.’ We will keep an eye on this situation in case anything changes.

Disclosure: Author holds no position in any stock mentioned.