UBS announces repositioning of the Bank to allow maximum strategic flexibility in its future development
UBS will separate its business divisions into three autonomous units and vest them with increased operational authority and accountability.
Cross-divisional collaboration will be promoted and driven to yield the maximum possible revenue generation for the firm, within a clear framework of servicing, revenue sharing and referral arrangements at market terms.
UBS will align incentives for management and staff of each autonomous business division directly with its financial results. This will promote profit generation within an appropriate and rigorous risk framework that fully recognizes the risk/reward profile of different activities.
UBS will continue to invest in and develop its global wealth management business, its core asset, with the aim of strengthening both its presence in international growth markets and its leading position in Switzerland.
The new structure will result in more transparency on the sources of value creation within UBS, impose strict standards on the availability and usage of capital, reward management for sustainable value creation, and will provide maximum strategic flexibility to capture shareholder value in the future.
The UBS brand will continue to be used by all its divisions.
Following a detailed review of its strategy by the UBS Board of Directors and the Group CEO, UBS today announces changes to its strategic direction and launches a comprehensive program to re-engineer its business. This move is intended to capitalize on and further grow the value of its leading client franchises across its three businesses, create a platform for sustained profitability for each, and maximize value for the Group as a whole.
UBS will now operate as a Group with autonomous business divisions. This move will make UBS more effective and agile in managing trends in the financial industry - including the uncertain near-term outlook for global financial markets and potential changes in regulatory capital requirements. The new business model will enhance the incentive for each business division to be successful on its own merits, without relying on capital and funding rate cross-subsidies from the other businesses.
"Our review has clearly revealed the weaknesses associated with the integrated "one firm" business model. Some of these weaknesses - such as the blurring of the true risk-reward-profile of individual businesses - are the source of substantial risk, as we have seen in the past few months. Others have led to the creation of excessively elaborate processes and unnecessary layers of complexity. The new structure will create a spirit of transformation, clear accountability and transparency, and will allow us to optimize funding and capital usage. This repositioning of the Bank will create maximum strategic flexibility to capture the best possible opportunities for shareholder value creation in the future," said Peter Kurer, Chairman of UBS.
"A lot has already been achieved in the repositioning of the Investment Bank. We have substantially reduced our risk exposures, balance sheet, costs and personnel, made changes in our group governance model and initiated remediation measures. I am determined to make the management of UBS more effective. These fundamental changes to the way we run our businesses will now increase the effectiveness of our management structure and processes, and of the way our businesses interact," said Marcel Rohner, CEO of UBS.
The executive management of the Group will be led by the CEO who will be supported by the Group Executive Board (GEB) and its newly established Executive Committee.
The full GEB will focus on group-wide interests and will, in particular, manage shared services and group leadership development, grow cross-divisional revenues, oversee regional governance, and review proposed changes to the business portfolio. The Executive Committee, which consists of the CEO, the CFO, the CRO (Chief Risk Officer) and the General Counsel, will decide on the resource allocation of the Group. It will set and monitor the performance targets for the business divisions, risk parameters, capital allocation and funding terms.
Divisional CEOs will be tasked with leading their business in a much more autonomous manner, accountable for dedicated capital resources, people and infrastructure. Regional CEOs will drive cross-divisional collaboration to generate value for UBS's shareholders and will assume group-wide regional regulatory responsibility. Corporate Center will be responsible for providing state-of-the-art group level control in the areas of finance, risk, legal and compliance, and significant attention will be devoted to strengthening and empowering these functions throughout the firm.
UBS will continue to develop the platform and reach of Global Wealth Management & Business Banking. This includes the expansion of its global presence in international wealth management growth markets. UBS's leading position in Switzerland, both as a wealth manager and as the largest retail bank, will remain a cornerstone of the strategy and of sustainable profit growth.
The Investment Bank will continue its repositioning towards client-driven growth, combined with a further reduction of its balance sheet and risk positions. This will allow the Investment Bank to build on its global coverage and distribution capability and to ensure maximum accountability for creation of shareholder value. Each business line - equities, investment banking and fixed income, currencies and commodities - will be measured by individual return on capital targets. A new compensation plan will balance risk and reward.
In the Global Asset Management division, independence of management as well as investment decision-making and investment performance are critical to compete successfully. Incentives for leadership and staff will be aligned with the results and investment performance of the business.
The change of UBS's business model will be achieved with a centrally managed change program, covering structural, legal and financial aspects of the transformation.
The seven streams of this program, which will start immediately, are:
Revised incentive systems to reward divisional management and staff for shareholder value creation in their own business division (during fourth quarter 2008)
Further enhancements to the funding framework so that the costs and structure of liabilities of each business division approximate those of stand-alone competitors (end 2009)
Adjustments to the executive governance structure to reflect the above changes (by end third quarter 2008)
Development of targets and performance indicators consistent with the repositioning of the business divisions (end 2008)
Reduction of the size and scope of the Corporate Center, in line with the re-allocation of process ownership to the divisions
Review of intra-divisional servicing, revenue sharing and referral arrangements (mid 2009)
Continuation of the strategic cost reduction program targeted at increasing the efficiency of the Group.
UBS expects the change program to be completed by the end of 2009.
Peter Kurer, Chairman of UBS, said: "We are satisfied that we have found the right strategic framework for the management and development of our businesses. This repositioning will allow UBS to move quickly in seizing opportunities to strengthen each business - through collaborations, joint ventures or other forms of combination - as financial markets recover to normality with the objective of delivering the highest possible value to shareholders while preserving the core asset of UBS, its global wealth management business".