UBS should be broken up says Knight Vinke

Group says Swiss bank should sell off its investment arm and sell it to staff

Activist investor Knight Vinke has reopened the debate about investment banking by calling on the Swiss bank UBS to sell off its casino investment banking arm to its employees.

On the day of the bank's annual meeting, the fund management group said: "We question the merits of keeping the investment bank under the same roof as the wealth management and Swiss banking businesses".

The investment bank, a major employer in the City and fined £940m for rigging Libor last year, is already being scaled back by a new management team, led by Sergio Ermotti who was installed in the fall out from the unauthorised £1.3bn trading losses caused by Kweku Adoboli, who has since been jailed for seven years.

Knight says UBS should sell of its investment banking arm.

 The division has just posted strong results for the first quarter of 2013 and Knight Vinke, which sent a representative to the annual meeting on Thursday, said this was now the moment to debate the structure of the group.

The investment bank had "nearly destroyed UBS" between 2007 and 2009 when the bank was bailed out by the Swiss authorities, said Knight Vinke, which has in the past criticised HSBC.

Knight Vinke said: "Investment banking is a very risky business and these risks pose a serious threat to UBS's wealth management and swiss banking franchises.

"They may also be preventing them from achieving their true potential. This is a discussion that is best had when all the businesses are doing well – as is the case today – and the board needs to be encouraged to act quickly and decisively so as not to lose the opportunity."

The fund manager, led by Eric Knight, suggested that the "best owners" for the investment could be its employees. Since 1998, the investment bank has paid Sfr115bn (£80bn) in salaries and bonuses to its employees but knocked a Sfr25bn hole in the entire group. "Transferring full or partial ownership of the investment bank to insiders would almost certainly lead to more prudent behaviour," Knight Vinke said.

The group voted against the remuneration report at the annual meeting at which 18% of shareholders failed to back the pay policies which included a potential £17m signing on fee for the new investment banking head Andrea Orcel.

However, this was an improvement on the 40% who had failed to support the pay awards the previous year. In response to the criticism by Knight Vinke, UBS said its shareholders had the opportunity to speak out at the annual meeting.

At the meeting "UBS confirmed that the firm is on track and comfortable with its new strategy".

"The results of the first quarter 2013 confirm that the company made significant progress and is reaping the benefits from its focus on wealth management and the Swiss bank supported by focused and de-risked investment banking activities and asset management," UBS said.

UBS has attempted to show restraint over pay since pharmaceutical company Novartis was forced to scrap a payoff of Sfr72m for its former head Daniel Vasella. There was also a national referendum which voted to ban big payouts for new and departing managers.UBS is said to have warned half its 16,000 investment bankers than they would not get bonuses and cut its total bonus pool by 7% to Sfr2.5bn.

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Article source : http://www.guardian.co.uk