UBS 'Must Reboot'
Vidya Ram , 04.04.08, 7:40 AM ET
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Arnold, whose investment fund, Olivant Advisors, holds a 0.7% stake in UBS, told the bank it should consider selling off its global asset management division to boost its capital position.
In an open letter to board member Sergio Marchionne, Arnold warned that there were "realistic scenarios" under which a proposed rights issue "may not be sufficient to achieve finality." With the possibility of further write-downs looming large, UBS has planned to create a " bad bank" to hold its toxic assets, as well as get a $15 billion capital injection.
Luqman also recommended that the bank consider selling Pactual, its Brazilian wealth management business, and its Australasian business.
Shares in UBS rose 2.0%, to 33.04 Swiss francs ($32.78), on Friday morning in Zurich.
"It is good news that activist investors are taking a serious interest in UBS, and Olivant and Arnold have a lot of credibility," said Dirk Becking, an analyst at Sanford Bernstein.
Arnold has hands-on experience with UBS, having spent eight months as its president, a position that is roughly equivalent to chief executive. He stepped down in December 2001 due to "differences of opinion" with the board, widely taken as a reference to Marcel Ospel, according to press reports. Ospel announced he was stepping down as chairman earlier this week. (See: "Losses Pry Ospel From UBS" )
It is unlikely that UBS will like the idea of selling its asset management division, which is in the middle of being restructured. "This would not be an optimal time to sell the asset management division, and it would currently sell at below what the company may be able to achieve if it hangs on to the division," said Becker.
Also, selling the unit would be an acknowledgement that the bank needed a further capital injection and would therefore make further investment losses.
More likely to gain support is Arnold's proposal to make UBS' wealth management a separate legal entity to its investment bank. Analysts, including Keefe Bruyette & Woods' Matthew Clark, have warned that troubles in the investment banking division have been spilling over into wealth management as a loss of confidence in the brand name has sent private banking clients to UBS's competitors.
Arnold also criticized the appointment of Peter Kurer, UBS's general counsel, as Ospel's replacement, and urged the bank to look for "an outstanding Swiss candidate with proven strategic, risk management and communications experience."
The bank has lost a total of $37 billion in investment write-downs from the subprime crisis and expects to make a first quarter loss of 12 billion Swiss francs ($11.9 billion). (See: "UBS: Not Over Yet")
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Companies: UBS
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