UBS signalled that it will cut its investment bank to a rump after a $37 billion (Dh136.16 billion) bill from the sub-prime crisis, the biggest of any bank in the world.
The Swiss group's new chief executive told shareholders on Wednesday that the investment bank would no longer be able to use UBS's prized wealthy client base to refinance its business, effectively cutting its lifeline.
"The capital required by the investment bank for future growth must be generated under its own steam," Marcel Rohner told shareholders. "Surpluses from the wealth management business will be returned to shareholders."
Although it will keep a rump of the business to provide structured products to UBS's wealthy customers, the decision marks the departure of an investment banking titan from the global stage which had regularly topped league tables.
Investors in UBS meet on Wednesday to consider a second emergency capital increase within months to stabilise the Swiss bank reeling from the subprime crisis and appoint a new chairman.
Marcel Ospel, who had ruled the bank with an iron hand, leaves UBS facing a bill of more than $37 billion from the crisis in loans given to risky US home owners, the largest of any bank in the world.
UBS in a report this week blamed poor risk control and a narrow focus on revenue growth for its woes, saying it had let the rapid build-up of its investment bank run out of control.
"The main issues raised by the report in our view are the incompatibility of investment banking in a group containing a private banking franchise," brokerage Helvea analyst Peter Thorne said in a research note.
Ospel's likely successor, little-known lawyer Peter Kurer, will now have to placate angry shareholders, many of whom are calling for a break-up of the Swiss wealth management and investment banking titan.
The Swiss bank will ask shareholders to support another 15 billion Swiss franc ($15 billion; Dh55.2 billion) capital increase, after its CHF13 billion sale of shares to the Singapore government and another, undisclosed investor from the Middle East.
Ospel had been harshly criticised for sanctioning UBS's misadventures in its bid to become the world's biggest investment bank, but held on to power longer than some had expected, sacking most of the top management.
Kurer is also controversial. Widely praised for his work as a lawyer, he has yet to prove himself as a banker, and is possibly tainted already by UBS's past because he was in top management when its recent blunders were made.
Activist investor Olivant – controlled by former UBS chief executive Luqman Arnold – has urged the bank to appoint a heavyweight banker at its helm instead.
The fund has said, however, it will not seek to force UBS's hand by rallying a wider vote at Wednesday's AGM. (Reuters)