The poor souls at the Swiss bank UBS (NYSE: UBS) are having trouble fixing what they have broken. The bank posted a loss of $329 million in the second quarter and took write-offs of $5.1 billion for bad assets.
Some sources say that UBS will now break off its investment bank from its wealth management division. Wealth management has healthy earnings while the investment side of the house is responsible for most of the big losses. Now nervous investors, troubled by rising mayhem, are pulling money out of the firm.
According to The Wall Street Journal, "Bowing to shareholder pressure, the Zurich-based bank said its main units will be separated, backing away from its integrated model." It may be a model for other large financial companies facing balance sheet troubles, especially Merrill Lynch (NYSE: MER) and Citigroup (NYSE: C), which also have big operations meant to handle individual investors.
The lesson from UBS is that there appears to be little advantage and a lot of risk to keeping private client and investment banking services under one umbrella. Shareholders in some of the largest U.S. financial companies can watch for UBS-style break-ups, which will probably push share prices in these companies higher. Walling off risk will become necessary as mortgage-paper related write-offs grow.
Douglas A. McIntyre is an editor at 247wallst.com.
Entrepreneur's Journal: Putting together a solid sales contract
The week in preview: Earnings from Walmart, Macy's, and other retailers
Six top trades for the rest of 2009
Reader Comments (Page 1 of 1)
8-15-2008 @ 1:56AM
Kimberley said...
I am not the least bit surprised by this news. I do not expect UBS to make it through the end of 2009 without some major shakeup or buyout occuring.
9-23-2008 @ 12:34PM
Sharon Stevens said...
If a person has all their money in UBS Financial Services are they safe?