UBS to split wealth management and investment bank

Swiss bank UBS AG will separate its business into three autonomous units after it identified weaknesses in its integrated one-bank strategy, it said, after posting a worse-than-expected second quarter loss of around €222.189 million.

The embattled group will separate its prized wealth management business from investment banking, acknowledging flaws in its much-vaunted one-bank strategy, it said yesterday.

The move follows continued pressure from investor Olivant to hive off investment banking and comes as UBS racked up further writedowns on battered investments and more losses.

UBS made a bigger-than-expected loss of €221 million in the second quarter. But more importantly, the period was also characterised by heavy money outflows from its business of banking to the world's rich.

Wealth management haemorrhaged €10.5 billion while its global asset management had net outflows of €15 billion.

It also announced it would replace its finance chief Marco Suter with investment banker John Cryan next month, as well as several other changes to the board.

The global markets turmoil has plunged UBS into the worst crisis in its history.

As demand for risky mortgages and other debt dried up, the bank has been forced to write down billions of dollars in the value of its investments.

As well as fighting calls for the group's break-up, UBS has also had to defend its conduct throughout the crisis.

UBS said yesterday it did not expect to see any improvement in economic and financial market trends in the second half of the year and said it would continue to cut jobs.

Last week, it agreed to buy back almost €12.8 billion of bonds after New York State and others sued it for steering clients towards auction-rate securities - debt which became impossible to sell after the market froze. UBS said this would cost it €606 million.

UBS was expected to post a second-quarter loss of €175 million, according to a Reuters poll conducted before the news of the debt securities buyback.

UBS is also under fire from US congressional investigators, who say the Swiss bank helped US clients dodge taxes.

Last June, a former UBS banker who once smuggled a client's diamonds into the US in a toothpaste tube pleaded guilty to helping a billionaire hide €130.47 million in assets from the taxman.

That case could ultimately force UBS to reveal the names of other US clients who dodged taxes, striking at the heart of Switzerland's prized banking secrecy rules.

But UBS's difficulties do not end there. It faces tough new rules later this year from the Swiss banking watchdog that will force it to hoard considerably more capital, putting a brake on capital-intensive investment banking.

The avalanche of problems has smothered the Swiss bank's stock. UBS's share price has tumbled by almost two thirds since the start of the year, twice that of European peers.