UBS Paying the Price for 'Balance Sheet Banking'

In a speech to shareholders today UBS (NYSE: UBS) CEO Marcel Rohner, said the investment banking business is going to have to go it alone. It will no longer be able to use cash from UBS’ wealth management business to grow.

He emphasized this by saying, “The capital required by the investment bank for future growth must be generated under its own steam. Surpluses from the wealth management business will be returned to shareholders through dividends or share buy-backs.” He also said UBS will no longer try to be all things to all people within the investment banking business.

Even if the above statement is true why would you ever state it publicly. So much for the full-service investment bank marketing pitch.

The Prince does agree with one of his final comments. “We did not question the integrated model enough. We used the strength of our balance sheet and compelling financing options for activities which should have been more expensive to finance based on their risk. We used our surplus cash flow from the wealth management business to promote organic growth in the investment bank. That was where we went wrong." When you compete for business solely with your balance sheet this is what happens. UBS won banking business, especially with sponsors, because they got aggressive on terms. Now they have to pay the price.

Comments

[venividivici]

I would not give UBS monopoly money to invest for me.

[jimsep]

Sounds like Citicorp-- using what once was a balance sheet to buy deals.

Could someone explain to me how stock repurchases are a return of surpluses to shareholders?