(Bloomberg News) UBS AG, Switzerland's biggest bank, will aim for return on equity of between 12 percent and 17 percent starting in 2013 as it shrinks the investment bank to concentrate on wealth management.
The Zurich-based bank also plans to pay a dividend of 10 centimes a share for 2011, its first cash payout since before the start of the financial crisis, it said in a statement today, as top executives speak to investors in New York.
Chief Executive Officer Sergio Ermotti, who took over from Oswald Gruebel following the discovery of a $2.3 billion loss from unauthorized trading in September, is scaling down fixed- income businesses as stricter capital requirements and the European sovereign debt crisis hurt profitability. UBS plans to cut risk-weighted assets at the investment bank by 145 billion Swiss francs ($158 billion) under Basel III rules by 2016 from about 300 billion francs currently.
"We have chosen to substantially reduce the risk profile of the bank by exiting and downsizing businesses which are not value added to our client franchise or deliver unattractive risk-adjusted returns," Ermotti, 51, said in the statement today. "We will continue to invest in products and geographies where we see opportunities to grow, particularly in our wealth management businesses."
UBS fell 32 percent to 10.49 Swiss francs in Zurich trading this year, compared with a 35 percent decline in the 46-company Bloomberg Europe Banks and Financial Services Index.
Ermotti, who joined the bank in April and became interim CEO after Gruebel quit, was confirmed in that role on Nov. 15.
"Ermotti has to watch out that scaling down doesn't become too expensive," said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets. "It will be pretty painful for all banks. They all want to get done with asset reductions as soon as possible, but few are preparing for the fact that many players will be getting out of many assets at the same time."
The investment bank will shrink its long-term rates business, almost halving the risk-weighted assets of the macro unit, which also includes foreign-exchange trading. Assets at the credit and emerging markets businesses will be cut by about a quarter each by 2016, while legacy assets, such as auction- rate securities, will be exited completely.
The investment bank will also get out of asset securitization, complex structured products, macro-directional trading and equity proprietary trading, slides from the presentation of investment-banking chief Carsten Kengeter showed. The bank wants to expand its commodities business and the special situations group, and continue to build on its strengths in equities, foreign exchange, capital markets and advisory businesses, Kengeter said.