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The partial re-rating of shares in UBS in November, following the announcement of substantial cuts to the fixed-income, currency and commodities arm of its investment bank, sends a stark message to managements of other financial institutions. UBS is cutting the size of its investment bank by two-thirds, with equity capital allocated to investment banking set to fall to just SFr7 billion ($7.4 billion) by 2015, down from SFr22 billion in the third quarter of 2012. Risk-weighted assets will also decline substantially, although some of these are now shunted off to a more swollen corporate centre division to be worked down. The bank’s funded balance sheet will fall by 30% over the next three years.
From dominating the UBS group today, and risking damage to its wealth management brand through reputational and regulatory snafus as well as a stream of grim updates on loss of market share, constrained margins and higher regulatory capital charges, investment banking in future will provide only about 13% of UBS’s profits. Retail and corporate banking, mainly in Switzerland, will provide a higher share at around 22%, with the rest, fully 65%, coming from its signature businesses of wealth and asset management .
