Disaster Preparedness

Share Deal Sweetens UBS Break-up

UBS-woman walking past
UBS is restructuring.
  • Why it matters

    Why it matters

    The restructuring by UBS will theoretically better prepare the Swiss bank to withstand future shocks to the global financial system.

  • Facts

    Facts

    • UBS is one of the world’s biggest wealth managers with assets of almost $2 trillion.
    • As of August 31, UBS’s profit reserve had increased by 731 million Swiss francs ($765 million) from two months earlier.
    • New banking regulations are forcing UBS and other global banks to restructure for easier partial liquidations.
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    Audio

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Swiss bank UBS has confirmed plans to split one of the world’s largest banks into three parts to help it weather another financial meltdown.

On Monday, it offered shareholders the chance to exchange shares for a stake in its new holding company, UBS Group, which will house the three new regional subsidiaries.

Chief Executive Sergio Ermotti has said these would consist of UBS Switzerland, London-based UBS Limited, and an “intermediate holding company” in the United States. The reorganization is to be completed by mid-2016.

The goal is to restructure the bank so that it can better withstand financial crises and be more easily liquidated should the event arise.

Shareholders who convert shares in the new holding company can expect a dividend of 0.25 Swiss francs, or about $0.26, per share, the bank said.

“I don’t expect any problems in the exchange of shares,” said Andreas Brun of Zurich Cantonal Bank.

“UBS is complying with the demands of regulators and is sweetening the process with a special dividend.”

Andreas Brun , Zurich Cantonal Bank

The new holding structure will ensure UBS meets the requirements of new “too big to fail” laws. Those laws prescribe that banks whose failure could disrupt the global financial system must develop emergency plans so they can be liquidated more easily in a crisis.

“UBS is complying with the demands of regulators and is sweetening the process with a special dividend,” said Mr. Brun.

If UBS presents a convincing liquidation plan, bank regulators could lower its capital requirements, which is the amount of money a bank must hold in reserve.

Last year another big Swiss bank, Credit Suisse, announced a similar restructuring. The bank plans to set up its own Swiss subsidiary under a new holding company, as well as new units for investment banking in London and the United States.

Large international banks such as UBS, Credit Suisse and Deutsche Bank face big regulatory challenges as they try to meet the new liquidation requirements.

Some industry experts worry about the trend toward renationalization as regulators in the United States, Great Britain and the European Union all set strict capital requirements.

Some industry experts worry about the recent trend toward renationalization as regulators in the United States, Great Britain and the European Union all set strict capital requirements. According to the UBS prospectus, meeting those requirements threatens to make financing more expensive.

But there was also some good news for UBS. The bank announced on Monday that at the end of August, its profit reserve had increased by 731 million Swiss francs ($765 million) compared to the end of June.

That was above its quarterly profit estimate of 713 million Swiss francs. But analysts cautioned against drawing conclusions about quarterly earnings.

“There are no further indications as to how the amount came to be,” said Mr. Brun. In other words, the apparent increase in profits could be the result of business operations or a one-time effect from entering tax credits into the bank’s accounts.

After that caution sank in, UBS stock gave up its early gains.

 

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The author is Handelsblatt’s correspondent in Switzerland, focusing mainly on the financial industry. To contact the author: Alich@handelsblatt.com

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